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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark one)

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
      for the fiscal year ended December 31, 1997

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      for the transition period from ____ to ____


                           Commission File No. 0-26682

                      TECHNOLOGY FLAVORS & FRAGRANCES, INC.
                 (Name of Small Business Issuer in its Charter)


           Delaware                                     11-3199437
(State or other Jurisdiction of                       (I.R.S. Employer
 Incorporation or Organization)                     Identification Number)

                             10 Edison Street, East
                           Amityville, New York 11701
                    (Address of Principal Executive Offices)

                                 (516) 842-7600
                (Issuer's Telephone Number, Including Area Code)

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:
                          Common Stock, $.01 par value
                                (Title of class)

      Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to filing requirements for the past 90 days.

                              Yes |X|      No |_|

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.|X|

            The Issuer's revenues for the fiscal year ended December 31, 1997
were $23,684,307.

            The aggregate market value of Registrant's voting stock (Common
Stock) held by non-affiliates on March 24, 1998 was approximately $10,070,200
based on the closing sale price of the Common Stock on such date of U.S.$1.34,
as reported by the Toronto Stock Exchange.

      The number of shares outstanding of each class of the Registrant's common
equity as of the date set forth below was:


     Common Stock, $.01 par value                      12,374,623
                 Class                        Outstanding at March 24, 1998

      Documents Incorporated by Reference: None

      Transitional Small Business Disclosure Format: Yes |_| No |X|

--------------------------------------------------------------------------------
<PAGE>

                      TECHNOLOGY FLAVORS & FRAGRANCES, INC.
                          Annual Report on Form 10-KSB
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

PART 1......................................................................   1
  ITEM 1-DESCRIPTION OF BUSINESS............................................   1
  ITEM 2-DESCRIPTION OF PROPERTY............................................   5
  ITEM 3-LEGAL PROCEEDINGS..................................................   6
  ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................   6
PART II.....................................................................   7
  ITEM 5-MARKETS FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........   7
  ITEM 6-MANAGEMENT'S DISCUSSION AND ANALYSIS...............................   8
  ITEM 7-FINANCIAL STATEMENTS...............................................  11
  ITEM 8-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE...........................................  11
PART III....................................................................  12
  ITEM 9-DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..................  12
  ITEM 10-EXECUTIVE COMPENSATION............................................  16
  ITEM 11-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....  20
  ITEM 12-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................  21
  ITEM 13-EXHIBITS AND REPORTS ON FORM 8-K..................................  22
SIGNATURES..................................................................  23
FINANCIAL STATEMENTS........................................................ F-1


                                        i
<PAGE>

                                     PART I

ITEM 1-DESCRIPTION OF BUSINESS

Introduction

      Technology Flavors & Fragrances, Inc. ("TFF" or the "Company") develops,
manufactures and markets flavors, fragrances and seasonings that are
incorporated by its customers into a wide variety of consumer and institutional
products including natural and artificial flavored beverages, confections,
foods, tobaccos, pharmaceuticals, aromatherapy essential oils, perfumes, and
health and beauty products. The Company's proprietary formulations are currently
used in more than 1,500 products sold by more than 500 companies worldwide,
approximately 50 of which are Fortune 1,000 companies. The Company's executive
offices are located in Amityville, New York while its manufacturing, research
and development, sales and marketing, and distribution facilities are located in
Amityville, New York and Milford, Ohio. The Company also has sales, marketing
and warehouse facilities located in Los Angeles, California, Toronto, Canada and
Chile, South America.

      Unless the context otherwise requires, (i) the term "Company" refers to
Technology Flavors & Fragrances, Inc., a Delaware corporation, together with its
wholly-owned subsidiaries, Technology Flavors & Fragrances, Inc. (Canada),
Technology Flavors & Fragrances Chile S.A., and (ii) all references to "dollars"
refer to U.S. dollars.

History

      The Company was incorporated in New York in 1989 under the name "Aroma
Globe, Inc." It later changed its name to "Technology Flavors & Fragrances,
Inc." in May 1991, when it acquired the assets and business of another company
by that name. Since then, the Company has expanded its operations primarily
through acquisitions of other businesses and internal growth.

      In July 1993, the Company acquired most of the assets of the Fragrance
Division ("F&C Fragrance Division") of F&C International Inc. for $5,441,000 in
cash. The acquisition was funded by bank debt of approximately $3,500,000 and
the sale, in a private offering, of 1,080,268 shares of Common Stock for net
proceeds of $1,499,000. The F&C Fragrance Division was engaged in the business
of developing, manufacturing, marketing and selling, domestically and
internationally, fragrance products for personal care, cosmetic and toiletry,
household, industrial and commercial products. The acquisition provided the
Company with a library of over 12,000 proprietary formulations and an
introduction to certain large U.S. manufacturers of household and personal care
products and of industrial and commercial products. The F&C Fragrance Division
serviced its fragrance customers from its production facility in Brooklyn, New
York, its marketing and research development facilities in Allendale, New
Jersey, and two warehousing facilities located in southern California and
Toronto, Canada. The Company thereafter consolidated the manufacturing,
marketing and research and development activities of the F&C Fragrance Division
at its Amityville, New York facilities and moved a portion of the warehousing
function to an adjoining building in Amityville, New York. In November 1993, the
Company reincorporated in Delaware and merged with Canamerica Corp., a private
corporation owned by Mr. Philip Rosner, one of the Company's founders and
current principal stockholders. Mr. Rosner was issued 200,000 shares of Common
Stock in the merger.

      In March 1994, the Company completed concurrent offerings of a total of
5,000,000 shares of Common Stock, 4,670,000 of those shares being sold to the
public in the Canadian Provinces of Ontario and British Columbia at a price of
Cdn. $2.00 per share and the other 330,000 shares being sold privately in the
United States for the equivalent price of U.S. $1.44 per share. In addition, the
Common Stock was listed on the Toronto Stock Exchange in March 1994. The
proceeds of these sales were used to pay the bank debt that was incurred to
acquire the assets of the F&C Fragrance Division.

      On December 6, 1995, the Company acquired substantially all of the assets
and assumed the trade obligations and certain other liabilities of Seafla, Inc.
("Seafla"), a Milford, Ohio producer of savory and dairy flavors (the "Seafla
Acquisition"). In consideration therefor, the Company paid Seafla $3,000,000 in
cash and issued a 12% promissory note for $888,019, payable in five installments
of $177,604 (the "Seafla Note"). The Company funded the cash portion of the
Seafla purchase price through bank borrowings of $3,500,000. The Company
operates Seafla's business as the Seasoning Division of the Company (the
"Seasoning Division"). Products from the Seasoning Division are purchased
principally by manufacturers of dairy products, snack foods and baked goods.


                                        1
<PAGE>

1996 Convertible Debt Financing

      On October 17, 1996, the Company consummated a financing providing for the
issuance of (i) $1,500,000 aggregate principal amount of 9% Convertible
Subordinated Notes due October 17, 1998 (the "Notes"), (ii) Class A Warrants to
purchase an aggregate of 450,000 shares of Common Stock, and (iii) Class B Stock
Warrants to purchase an aggregate of 156,250 shares of Common Stock. The Class A
Warrants and the Class B Warrants are exercisable for shares of Common Stock at
exercise prices of $2.40 and $2.70 per share, respectively, subject to
adjustments under certain circumstances. The Notes were collateralized by liens
on substantially all of the assets of the Company and were convertible into
shares of Common Stock, at the option of the Company, at any time on or prior to
October 16, 1997, at a conversion price equal to the average market price of the
Common Stock for the ten trading days immediately preceding the date of
determination.

The October 1997 Refinancing

      On October 16, 1997, the Company entered into a credit agreement with a
bank providing for a $6,000,000 revolving credit facility and a $750,000 term
loan facility (the "1997 Credit Facility"). The 1997 Credit Facility replaced
the Company's then existing $5,500,000 credit line (the 1996 Credit Facility)
and paid $750,000 of the Notes. In conjunction with the October 1997
Refinancing, the Company converted an aggregate principal amount of $750,000 of
the Notes into 387,655 shares of the Company's Common Stock, based on the
weighted average share price during the preceding ten trading days prior to the
closing. See "Management's Discussion and Analysis -- Liquidity and Capital
Resources."

Industry Overview

      The flavor, fragrance and seasoning industries sell primarily to
manufacturers of consumer products. The cost of the flavor, fragrance or
seasoning component of a consumer product typically represents a small portion
of the total cost of the consumer product. As a result, in selling such
products, the Company believes that price is a less significant factor than
product performance and customer service.

      The Company believes that important changes in consumer buying habits and
preferences over the past few years have had a significant impact on these
industries as a whole. The Company believes that these changes have contributed
to a demand for new and innovative products. The Company believes that currently
there is a trend toward more natural foods in the marketplace, requiring
manufacturers to produce more naturally-flavored products. Not only has this
translated into a steady shift from artificial ingredients to natural ones, but
it is also placing greater emphasis on achieving flavors that more effectively
impart "natural" tastes in processed foods. The Company believes that a growing
desire among consumers to adopt a healthier lifestyle is increasing the demand
for lighter, healthier foods. This has posed new challenges for the Company to
come up with ways of replacing the tastes which are lost when sugar, salt, fat,
and cholesterol are reduced or eliminated from traditional food preparations.

      The Company believes that another important trend in the industry is the
growing consumption of processed foods. It is estimated that more than 80% of
the food consumed today is in processed form, and over 1,000 natural and
synthetic flavoring agents are used to produce these foods. The Company believes
that as the demand for microwaveable products and prepared and frozen
convenience foods continues to rise, so, too, will the need for new flavor
products to counteract the adverse effects of microwaving and freezing.

      The Company believes that the trend towards natural, healthier ingredients
also includes soaps, shampoos, cosmetics, detergents, and other cleaning
products, air fresheners, and numerous other household items.

Products

      The Company's principal product categories include the following: natural
flavors, artificial flavors, seasonings and fragrances. The five largest
end-user categories for the Company's products are beverages, snack foods,
confections, cosmetics and tobacco. The Company's flavor products, produced from
its proprietary formulations, are sold primarily to the beverage, food and
tobacco industries. Its principal flavor product lines include sweet goods,
culinary, savory, dairy and tobacco flavorings and seasonings. Examples of
consumer products containing the Company's flavor products include: confections,
toothpaste, chewing gums, prepared foods, ice creams, animal feeds, candy,
tobacco, alcoholic and non-alcoholic beverages, poultry and seafood, processed
meats and snack foods.

      Areas in which the Company believes currently offer growth opportunities
include the following: flavor products to enhance "natural foods"; products to
restore the flavors in non-fat and low fat, sugar, salt and cholesterol foods;
and flavor products able to withstand the effects of microwaving and freezing
(i.e., convenience foods).


                                        2
<PAGE>

      The Company's fragrance products, produced from its proprietary
formulations, are sold primarily to the personal care, cosmetic and toiletry,
and household and industrial product industries. Fragrances are used by
customers in the manufacture of a wide variety of consumer products, such as
soaps, detergents, household cleaners, cosmetic creams, lotions and powders,
after-shave lotions, deodorants, air fresheners, perfumes, colognes,
aromatherapy oils and hair care products.

Research and Development

      The Company's research and development ("R&D") activities are conducted
primarily at its Amityville, New York and Milford, Ohio facilities. The Company
maintains R&D labs as well as applications labs, both of which it believes are
necessary for the development of high quality flavor and fragrance compounds.

      The Company believes that the most fundamental challenge in creating
flavor and fragrance formulations, from a technical standpoint, is to develop
flavors and fragrances which are: (1) able to withstand the rigors of
processing, storage, and final preparation and (2) able to maintain the
integrity of the basic taste and scent characteristics for the useful life of
the final product. In the case of certain products, such as perfumes, colognes
and frozen foods, the potential shelf-life of the product may be a period of up
to one year.

      The Company works in association with existing and potential customers in
the development of a flavor or fragrance for a new consumer product. During the
process, which generally takes between six and nine months, it is not unusual
for the Company to present the customer with several samples from the Company's
proprietary formulations. Typically, a particular flavor or fragrance
formulation is created and produced for one customer.

      In the last two years, the Company has furnished over 10,000 samples to
existing and potential new customers. The typical lag time between when samples
are tested and when customers may place production orders historically has
ranged from 6 to 18 months.

      In 1996, the Company installed a Processed Flavor Reaction Laboratory that
utilizes amino acids and sugars in a water medium to produce meat, poultry and
roasted flavors and aromas. The Company currently offers new and innovative
products developed in the laboratory.

      During the past several years, the flavor industry has had to respond to
new demands by consumers for (i) products with little or no cholesterol, fat,
sugar or salt, (ii) products that withstand microwaving or freezing, and (iii)
products that contain more natural ingredients. Each of these demands results in
taste differences from what consumers have come to expect so that new flavor
formulations are necessary to satisfy taste expectations. Consequently, the
Company believes its research and development abilities are increasingly
important for flavor products.

      The Company expended $1,929,000 and $1,972,000 in R&D during 1997 and
1996, respectively, and expects to expend a similar amount in 1998.

Raw Materials

      The Company utilizes a significant number of different raw materials in
the preparation of its flavor, fragrance and seasoning formulations.
Considerable effort is devoted to ensuring that these ingredients remain uniform
and consistent over time - a critical process, since many of the raw materials
are inherently unstable, and/or are derived from plants that vary naturally with
seasons and crop years. Accordingly, shipments of raw materials received by the
Company are tested and analyzed for compliance with set specifications.

      The Company purchases raw materials from various suppliers. For the year
ended December 31, 1997, no single supplier and no single raw material accounted
for more than approximately 11% and 3%, respectively, of the Company's raw
material requirements. Although there can be no assurance, the Company believes
that alternate sources of raw materials are available in the event of an
interruption in the supply of raw materials from a single supplier.

Seasonality

      Historically, the Company's sales tend to be higher in the quarters ending
June 30 and September 30 primarily due to higher consumer demand from the
Company's beverage and snack food customers during those periods. There can be
no assurance that the Company's seasonality will not have a material adverse
affect on its operations.


                                        3
<PAGE>

Competition

      The flavor, fragrance and seasoning industries are highly fragmented with
a few large companies, such as International Flavors & Fragrances Inc., Haarmann
& Reimer Corporation and Firmenich, Inc., competing against many smaller ones.
Certain of the Company's competitors have substantially greater financial,
marketing and other resources than the Company. Recently, there have been trends
towards increased industry concentration as companies vertically integrate with
suppliers and expand horizontally through acquisitions. The Company believes
that its competitiveness depends upon its creativity, responsiveness and
reliability, as well as the diversity of its customers and products. Management
expects that the Company will continue to sell to large companies that do not
purchase all of their flavor and fragrance products from a single supplier and
to smaller companies that the Company's large competitors do not choose to
service.

Customers

      The Company's formulations are currently used in more than 1,500 products
sold by more than 500 companies worldwide, approximately 50 of which are Fortune
1,000 companies. The Company cooperates with these customers in the development
of specific flavors or fragrances for a particular end product. No one customer
accounted for more than 10% of the Company's revenues in 1996. For the year
ended December 31, 1997, one customer accounted for approximately 16% of the
Company's revenues and the top ten customers accounted for approximately 42% of
the Company's revenues.

Export Sales

      For the years ended December 31, 1997 and 1996, export sales were
approximately 30% and 29%, respectively, of total sales. The Company's export
sales are made to entities located primarily in Canada and South America.
Receivables from such foreign sales at December 31, 1997 and 1996 amounted to
41% and 59%, respectively, of total accounts receivable.

Backlog

      Customers purchase the Company's products as required, and normally
delivery can be made within two to four weeks thereafter. Consequently, backlog
is not a significant indicator of the volume of the Company's business over an
extended period of time.

Year 2000

      The Company has updated its software so that it believes its computer
systems are Year 2000 compliant. However, there can be no assurances that the
Company will not be adversely affected by unanticipated Year 2000 issues. The
costs associated with updating its computer systems to become Year 2000
compliant were not material and were expensed in 1997.

Foreign Operations

      Approximately 4% and 5% of the Company's net sales for the years ended
December 31, 1997 and 1996, respectively, were derived from sales denominated in
foreign currencies. The effect of foreign currency exchange rate fluctuations on
such revenues is largely offset to the extent expenses of the Company's
international operations are incurred and paid for in the same currencies as
those of its sales.

Governmental Regulations

      Production of many of the Company's products involves the manufacture of
flavors and seasonings for foods and beverages, the handling of alcohol and the
generation, storage, transportation and disposal of hazardous waste.
Accordingly, the Company's operations are subject to extensive federal, state
and local laws and regulations relating to such matters, and to the safety and
health of the Company's employees. Although there can be no assurance, the
Company believes that it currently complies in all material respects with such
laws and regulations. The Company could be subject to, among other things,
sanctions, penalties (including significant fines), and suspension or revocation
of required licenses or permits for failure to comply with applicable
governmental laws or regulations. Any of these actions could have a material
adverse effect on the results of the operations of the Company in any given
year, or materially effect the Company's liquidity or financial position over a
longer period of time. At this time, the Company is unable to anticipate the
impact, if any, that subsequent changes or new interpretations to applicable
regulations may have on the Company's business, financial condition or results
of operations.

Employees

      At March 24, 1998, the Company had approximately 93 full-time employees,
categorized as follows: 9 management, 14 administrative, 14 marketing and sales,
28 production, 22 research and development, and 6 customer service. The Company
considers its relationships with its employees to be satisfactory.

Proprietary Rights

      The Company considers its flavor, fragrance and seasonings formulas to be
proprietary information and trade secrets. The Company does not, however,
generally rely on patents, copyrights or trademarks to protect its proprietary
rights in formulations. There can be no assurance that the Company's current
protections will be adequate or that the Company's competitors will not
independently develop flavors, fragrances and seasonings that are substantially
equivalent or superior to the Company's flavors, frangrances and seasonings.


                                        4
<PAGE>

      A substantial portion of the Company's technology and know-how are trade
secrets. The Company has a policy of requiring its employees and contractors to
respect its proprietary information through written agreements. In addition, the
Company has a policy of requiring prospective business partners to enter into
non-disclosure agreements before any of the Company's proprietary information is
revealed to them. There can be no assurance that the measures taken by the
Company to protect its technology, products and other proprietary rights will
adequately protect the Company against improper use of the technology, products
or other proprietary rights. Further, there can be no assurance that others will
not independently develop substantially equivalent proprietary information and
technologies, or otherwise gain access to the Company's trade secrets.

      The Company may be required to take various forms of legal actions, from
time to time, to protect its proprietary rights. Because of the rapid evolution
of technology and uncertainties in intellectual property laws in the United
States and internationally, there can be no assurance that the Company's current
or future products or technologies will not be subject to claims of
infringement. Any litigation regarding claims against the Company or claims made
by the Company against others could result in significant expense to the
Company, divert the efforts of its technical and management personnel and have a
material adverse effect on the Company, whether or not such litigation is
ultimately resolved in favor of the Company. In the event of an adverse result
in any such litigation, the Company may be required to expend significant
resources to develop non-infringing products or obtain licenses from third
parties. There can be no assurance that the Company would be successful in such
development or that any such licenses would be available on commercially
reasonable terms, if at all.

Forward-Looking Statements

      Certain statements contained in this Form 10-KSB, including, without
limitation, statements containing the words "believes," "anticipates," "may,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company (or industry results, performance or
achievements) expressed or implied by such forward-looking statements to be
substantially different from those predicted. Such factors include, among
others, the following: general economic and business conditions, both nationally
and in the regions in which the Company operates; competition; changes in
business strategy or development plans; the development or testing of the
Company's products; technological, manufacturing, quality control or other
problems which could delay the sale of the Company's products; the Company's
inability to obtain appropriate licenses from third parties, protect its trade
secrets, operate without infringing upon the proprietary rights of others and
prevent others from infringing on the proprietary rights of the Company; the
Company's inability to obtain sufficient financing to continue operations; and
changes in demand for products of the Company's customers. Certain of these
factors are discussed in more detail elsewhere in this Form 10-KSB, including,
without limitation, under the captions "Management's Discussion and Analysis"
and "Business."

ITEM 2-DESCRIPTION OF PROPERTY

      The Company's principal properties are its 36,000 square foot headquarters
and production facility at 10 Edison Street, East in Amityville, New York, with
an adjoining 12,000 square foot warehouse, and a 37,000 square foot facility in
Milford, Ohio. The Company's lease concerning its principal executive offices
and production facility in Amityville, New York expires in 2006 and its lease
for its Ohio facility expires in 2014. The Ohio facility is leased from a
partnership in which Mr. Richard Higgins, the Company's Executive Vice
President, is a partner. See "Certain Relationships and Related Transactions."
The Company also leases marketing, warehouse and customer service facilities in
southern California, Toronto, Canada, and Chile, South America. The Company
believes that its existing leases will be renegotiated as they expire or it will
lease alternative properties on acceptable terms. The Company believes its
present facilities are adequate for its current and anticipated operations.


                                       5
<PAGE>

ITEM 3-LEGAL PROCEEDINGS

      Except as provided below, the Company is not a party to any pending legal
proceedings other than ordinary litigation incidental to its busines.

      Strategic Growth International, Inc. v. Technology Flavors & Fragrances,
Inc. In February 1998, the Company's former investor relations consultant
commenced an action against the Company in the Supreme Court of the State of New
York, County of Nassau, seeking damages for the Company's alleged failure to
perform its obligations under an agreement between the parties concerning the
consultant's services to be performed. The consultant, whose services were
terminated by the Company in October of 1997, is seeking damages in the amount
of $124,950. The Company intends to vigorously contest the action, and believes
it to be without merit. Although there can be no assurance, management is of the
opinion that the resolution of this matter will not have a significant impact on
the Company's financial position, results of operations or cash flows.

ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      On June 25, 1997, the Company held its annual meeting of stockholders (the
"Annual Meeting"). The proposals voted upon at the Annual Meeting and the
results with respect to each proposal are set forth below:

                     Proposals Voted Upon at Annual Meeting

      1. To elect six directors to serve for a term of one year and until their
respective successors are duly elected and qualified.

      2. To ratify the selection by the Company's Board of Directors of Ernst &
Young L.L.P. as independent certified public accountants of the Company for the
fiscal year ended December 31, 1997 and to authorize the Board of Directors to
fix their remuneration.

                                                                     Abstain/Not
Proposals                                       For        Against     Voting
---------                                       ---        -------     ------
No. 1 (Election of Directors)
     Philip Rosner ......................    6,118,587      5,000      3,744
     A. Gary Frumberg ...................    6,118,587      5,000      3,744
     Richard R. Higgins .................    6,118,587      5,000      3,744
     Sydney Stein .......................    6,118,587      5,000      3,744
     Duncan Shirreff ....................    6,118,587      5,000      3,744
     Scott Cunningham ...................    6,118,587      5,000      3,744
No. 2 (Ratification of Accountants) .....    6,122,587      1,000      3,744


                                       6
<PAGE>

                                     PART II

ITEM 5-MARKETS FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      Toronto Stock Exchange. The Company's Common Stock has been listed on the
Toronto Stock Exchange ("TSE") since March 28, 1994 (Symbol: "TFF"). The
following table sets forth the reported high and low sale prices (as reported by
the TSE) for the Company's Common Stock for each calendar quarter from January
1, 1996 through March 24, 1998, in Canadian dollars and translated into U.S.
dollars at the exchange rates in effect on those dates.

                                       High                       Low
                                       ----                       ---
1996
   First Quarter .........  Cdn. $2.45 (U.S. $1.78)     Cdn. $1.20 (U.S. $0.88)
   Second Quarter ........  Cdn. $3.42 (U.S. $2.50)     Cdn. $2.00 (U.S. $1.47)
   Third Quarter .........  Cdn. $2.95 (U.S. $2.15)     Cdn. $2.05 (U.S. $1.49)
   Fourth Quarter ........  Cdn. $2.68 (U.S. $1.97)     Cdn. $1.50 (U.S. $1.12)

1997
   First Quarter .........  Cdn. $2.25 (U.S. $1.64)     Cdn. $1.75 (U.S. $1.29)
   Second Quarter ........  Cdn. $2.50 (U.S. $1.80)     Cdn. $1.70 (U.S. $1.23)
   Third Quarter .........  Cdn. $2.83 (U.S. $2.05)     Cdn. $2.00 (U.S. $1.45)
   Fourth Quarter ........  Cdn. $2.69 (U.S. $1.96)     Cdn. $1.70 (U.S. $1.19)

1998
   First Quarter
   (through March 24, 1998) Cdn. $2.75 (U.S. $1.90)     Cdn. $1.75 (U.S. $1.23)

      The closing price of the Common Stock on the TSE on March 24, 1998 was
Cdn. $1.90 (U.S. $1.34).

      OTC Bulletin Board. Information regarding the Company's Common Stock is
available through the Nasdaq OTC Bulletin Board. The Company's Common Stock
(Symbol: "TFFI") was first quoted on the OTC Bulletin Board on March 12, 1996.
The following table sets forth the range of high and low bid quotations for the
Common Stock (as reported by the OTC Bulletin Board) for each quarter with
respect to the period from March 12, 1996 through March 24, 1998.

                                                  High                  Low
                                                  ----                  ---

1996
   First Quarter (from March 12, 1996) .....  U.S. $  1.625      U.S. $ 1.125
   Second Quarter ..........................  U.S. $ 2.0625      U.S. $ 1.375
   Third Quarter ...........................  U.S. $ 2.0625      U.S. $  1.50
   Fourth Quarter ..........................  U.S. $  1.875      U.S. $1.1187

1997
   First Quarter ...........................  U.S. $  1.625      U.S. $1.1875
   Second Quarter ..........................  U.S. $ 1.6563      U.S. $ 1.125
   Third Quarter ...........................  U.S. $ 2.0938      U.S. $1.4688
   Fourth Quarter ..........................  U.S. $ 1.9688      U.S. $ 1.125

1998
   First Quarter (through March 24, 1998) ..  U.S. $  1.906      U.S. $  1.25

      The closing price of the Common Stock on the OTC Bulletin Board, as
reported by Nasdaq on March 24, 1998, was U.S. $1.50.

      At March 24, 1998, the Company believes there were approximately 900
stockholders of record of the Company's Common Stock.

      To date, the Company has not paid any dividends on its Common Stock and
does not anticipate paying dividends in the foreseeable future. The declaration
and payment of dividends on the Common Stock is in the discretion of the Board
of Directors and will depend on, among other things, the Company's operating
results, financial condition, capital requirements, contractual restrictions or
prohibitions and such other factors as the Board of Directors may deem relevant.


                                       7
<PAGE>

ITEM 6-MANAGEMENT'S DISCUSSION AND ANALYSIS

1997 Overview

      In 1997, the Company focused its efforts on achieving the goals identified
in its strategic business plan. During the early part of the year, the Company
implemented cost reductions which resulted in a net reduction in its 1997
general and administrative expenses of approximately $937,000. During the latter
part of the year, the Company identified and subsequently implemented in early
1998 further cost reduction measures which the Company believes are expected to
favorably affect operations in 1998.

      In 1997, the Company continued expanding its sales and marketing
activities, particularly in the Fragrance Division where it hired additional
sales professionals and increased its marketing efforts. Such additional
expenditures in the Fragrance Division are expected to support anticipated
future growth. During 1997, the Company also continued its commitment to R&D by
investing approximately $1,929,000 or 8.1% of 1997 net sales in R&D. During the
year, the Company introduced numerous new products to new and existing customers
and is currently in the process of developing numerous other products, some of
which the Company anticipates launching in 1998.

      During the fourth quarter of 1997, the Company experienced a significant
decrease in net sales due principally to a weakening of the flavor industry, a
reduction in shipments of a new product line to a significant customer and
delays in new product launches. Such reduction in net sales had a significant
unfavorable impact on the Company's results of operations for the 1997 fourth
quarter which contributed to the net loss for the 1997 year. The Company
believes, however, that this was a temporary downturn and that the sales trend
still remains favorable based on the increase in recent new product launches and
pending new product developments.

Results of Operations

The following information for the years ended December 31, 1997, 1996 and 1995
has been derived from the Company's audited consolidated financial statements
and should be read in conjunction with such statements and the notes thereto
included elsewhere in this Annual Report on Form 10-KSB.

<TABLE>
<CAPTION>
                                                    Year ended December 31,
                                 ------------------------------------------------------------
                                         1997                 1996                 1995
                                 ------------------   ------------------   ------------------
                                                  (dollar amounts in thousands)
<S>                              <C>         <C>      <C>         <C>      <C>         <C>
Net sales ....................   $ 23,684    100.0%   $ 21,018    100.0%   $ 15,192    100.0%


Gross profit .................      9,143     38.6       7,863     37.4       5,833     38.4
Operating expenses:
    Selling ..................      3,615     15.3       3,543     16.9       2,458     16.2
    General and administrative      2,554     10.8       3,491     16.6       2,012     13.2
    Research and development .      1,929      8.1       1,972      9.4       1,146      7.5
    Amortization expense .....        981      4.1         833      4.0         449      3.0
Income (loss) from operations          64       .3      (1,977)     9.4        (232)     1.5
Interest expense, net ........        704      3.0         558      2.7         115      0.8
Provision for income taxes ...          9       --           3       --          20      0.1
Net loss .....................       (648)     2.7      (2,538)    12.1        (367)     2.4
</TABLE>


                                       8
<PAGE>

      Net Sales. Net sales increased 13% to $23,684,000 in 1997 from $21,018,000
in 1996 due principally to shipments of new flavor and fragrance products to new
and existing customers relative to increased marketing activities and shipments
of a new flavor product line to a significant customer during the first and
second quarters of 1997. Net sales increased 38% to $21,018,000 in 1996 from
$15,192,000 in 1995 primarily due to 1996 sales of $5,345,000 contributed by the
Seafla Division, which had been acquired in December 1995. The balance of the
sales increase in 1996 came principally from the Company's flavor products. By
expanding Seafla's customer base to include those of TFF, sales generated from
the Seafla Division in 1996 were $1,120,000 higher than in 1995.

      Gross Profit. Gross profit, as a percentage of sales, increased to 38.6 %
on sales of $23,684,000 in 1997, as compared to 37.4% on sales of $21,018,000 in
1996 due to higher margins on new product launches in 1997 and higher sales
volume. Gross profit, as a percentage of sales, decreased to 37.4% on sales of
$21,018,000 in 1996, as compared to 38.4% on sales of $15,191,000 in 1995,
principally as a result of the Seafla Division, which has operated historically
at a gross profit of approximately 36%.

 Operating Expenses:

      Selling Expenses. Selling expenses increased modestly to $3,615,000 in
1997 from $3,543,000 in 1996 due principally to the additional hiring of sales
professionals during the latter part of 1997. Selling expenses increased to
$3,543,000 in 1996 from $2,458,000 in 1995. The increase was primarily
attributable to the Seafla Acquisition, which resulted in additional selling
expenses in 1996 of $731,000. The balance of the increase resulted from
expansion of the Company's sales and marketing activities, including the
addition of personnel and increased expenditures for sales support, and costs
associated with the Company's share of certain co-operative start-up marketing
and advertising costs incurred by a significant Company customer associated with
a new product line which began production during the first quarter of 1997.

      General and Administrative Expenses. General and administrative expenses
decreased from $3,491,000 in 1996 to $2,554,000 in 1997. The decrease was
primarily attributable to the effects of the Company's 1996 cost reduction
program which was fully implemented in early 1997. Such reduction principally
came from reduced administrative personnel and support costs, professional and
consulting fees and travel costs. General and administrative expenses increased
to $3,491,000 in 1996 from $2,012,000 in 1995. The Seafla Acquisition resulted
in $751,000 of the incremental costs, while the hiring of additional key
management personnel and higher professional and consulting services fees,
occurring principally during the second half of 1996, also contributed to such
increase. In addition, during the fourth quarter of 1996, the Company incurred
approximately $122,000 of costs associated with the start-up and pre-production
phases of a major product development program launched by a significant Company
customer which commenced production in early 1997.

      Research and Development Expenses. Research and development expenses of
$1,929,000 in 1997 were consistent with the level of expenditures incurred in
1996. Research and development expenses increased to $1,972,000 in 1996 from
$1,146,000 in 1995. The Seasoning Division accounted for $383,000 of the
increase while the balance principally pertained to costs associated with a
major product development program by a significant customer and was incurred
primarily during the fourth quarter of 1996. Full production and sales by such
customer from this program commenced during the first quarter of 1997.

      Amortization Expense. Amortization expense increased to $981,000 in 1997
from $833,000 in 1996 due principally to the write-off of deferred financing
costs, principally legal and brokers' fees, associated with previous financing
arrangements which were replaced by the October 1997 debt refinancing.
Amortization expense amounted to $833,000 in 1996, an increase of $384,000 from
1995's total of $449,000. The increase was principally attributable to the
Seafla Acquisition and the amortization of related deferred financing costs.


                                       9
<PAGE>

      Interest Expense, Net. Interest expense increased to $704,000 in 1997 from
$558,000 in 1996 primarily due to the additional long-term debt incurred by the
Company in October 1996 in connection with the $1.5 million convertible debt
financing. Interest expense rose to $558,000 in 1996 from $115,000 in 1995. The
increase was due primarily to debt financing for the Seafla Acquisition. See
"Liquidity and Capital Resources".

      Provision for Income Taxes. Provision for income taxes represents state
franchise taxes.

Liquidity And Capital Resources

      Cash used in operations amounted to $242,000 for the year ended December
31, 1997 as compared to $1,615,000 for the prior year. Working capital at
December 31, 1997 increased by $978,000 to $4,998,000 as compared to $4,020,000
at December 31, 1996.

      Historically, the Company's financing needs have been met through the
issuances of equity and debt. In October 1996, the Company consolidated its then
existing $3,500,000 term loan (obtained in connection with the Seafla
Acquisition) and its $2,000,000 revolving credit facility into a $5,500,000
revolving credit facility (the "1996 Credit Facility"). The borrowings were
collateralized by liens on substantially all of the assets of the Company. In
April 1997, the Company and the lender under the 1996 Credit Facility entered
into a waiver and modification agreement (the "1996 Waiver") which waived
compliance by the Company with certain covenants for 1996 and amended one such
covenant for 1997. Additional events of default were also added to the 1996
Credit Facility. In connection with the Waiver, the Company issued the lender a
warrant to purchase 100,000 shares of Common Stock, at an exercise price of
$2.40 per share (subject to adjustments). The warrant contains a "put" provision
which gives the bank the right to require the Company to purchase the warrant
from the bank for $20,000. In addition, the Company has the right at any time
prior to April 7, 1998 to "call" 50,000 of the warrants by paying the bank
$20,000.

      In October 1996, the Company also consummated a financing which provided
for the issuance of $1,500,000 9% Convertible Subordinated Notes due October 17,
1998 (the "Notes") and the issuance of Class A Warrants to purchase an aggregate
of 450,000 shares of Common Stock at $2.40 per share (subject to adjustments)
and Class B Warrants to purchase an aggregate of 156,250 shares of Common Stock
at $2.70 per share (subject to adjustments). The Notes were collateralized by
liens on substantially all of the assets of the Company, which liens were junior
to those in favor of the Company's lender under the 1996 Credit Facility.

      On October 16, 1997, the Company entered into a credit agreement with a
bank providing for a $6,000,000 revolving credit facility and a $750,000 term
loan facility (the "1997 Credit Facility"). The 1997 Credit Facility replaced
its then existing $5,500,000 credit line (the 1996 Credit Facility) and paid
$750,000 of the Notes (the "October 1997 Refinancing"). Outstanding borrowings
under the 1997 Credit Facility bear interest based on the bank's London
Interbank Offering Rate ("LIBOR") plus 2 1/2% (which currently equates to
approximately 1/4 of 1% below the bank's prime rate) or 1/2 of 1% above the
bank's prime rate, at the Company's option. Outstanding borrowings are
collateralized by substantially all of the assets of the Company and are subject
to eligibility requirements relating to the Company's receivables, inventories
and product formulations. In December 1997, the Company was in violation of two
financial covenants in the credit agreement relating to the 1997 Credit
Facility. In March 1998, the Company and the lender under the 1997 Credit
Facility entered into a waiver and amendment agreement (the "1998 Amendment")
which waived compliance by the Company with certain covenants for 1997 and
amended certain financial covenants for 1998. In connection with the Amendment,
the Company is obligated to pay the bank $75,000 on or before July 1, 1998,
provided however, that in the event certain conditions are met, the amount
required to be paid to the bank will be reduced to $50,000.


                                       10
<PAGE>

      Under the credit agreement relating to the 1997 Credit Facility, the
Company is prohibited from incurring any indebtedness other than, among other
things, existing indebtedness, subordinated debt (with the consent of the bank),
and unsecured trade indebtedness in the ordinary course of business, and is
restricted in its ability, among other things, to incur liens, make investments,
sell assets, make acquisitions and pay dividends. The Company's inability to
incur additional indebtedness when additional funds are needed may cause it to
delay, scale back or eliminate some or all of its operations which could have a
material adverse effect on its operations.

      In conjunction with the October 1997 Refinancing, the Company converted an
aggregate principal amount of $750,000 of the Notes into 387,655 shares of the
Company's Common Stock, based on the weighted average share price during the
preceding ten trading days prior to the closing. As of March 24, 1998, the
Company had outstanding borrowings of approximately $713,000 under its term loan
facility and approximately $4,925,000 under its revolving credit facility and
approximately $458,000 was available for borrowings against its borrowing base.
As of March 24, 1998, the outstanding borrowings under the 1997 credit facility
bore interest at the rate of approximately 8.2% per annum.

      On March 9, 1998, the Seafla Note was amended to extend the first
principal installment of $177,604 from March 31, 1998 to January 1, 2000. The
remaining four principal installments are payable on January 1 each year
thereafter through 2004. See "Description of Business - History."

      The Company believes it has adequate capital to fund current operations
for at least the next 12 months. However, the Company may be required to obtain
additional financing earlier in order to continue its operations or otherwise.
There can be no assurance that additional funds will be available when needed,
or if available, will be on favorable terms or in the amounts required by the
Company. If adequate funds are not available to the Company when needed, it may
be required to delay, scale back or eliminate some or all of its marketing and
development efforts or other operations, which could have a material adverse
effect on the Company's business, results of operations and prospects. Future
issuances of the Company's securities will cause dilution to the Company's then
existing stockholders, which in certain circumstances could be substantial.

ITEM 7-FINANCIAL STATEMENTS

      The audited consolidated financial statements of the Company for the
fiscal years ended December 31, 1997 and 1996 begin on page F-1 of this Annual
Report on Form 10-KSB.

ITEM 8-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
       DISCLOSURE

      None.


                                       11
<PAGE>

                                    PART III

ITEM 9-DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
       WITH SECTION 16(a) OF THE EXCHANGE ACT

Information Concerning the Company's Board of Directors and Executive Officers

      The following table sets forth certain information concerning the
Company's directors and executive officers.

Name                        Age          Positions with the Company
----                        ---          --------------------------

Philip Rosner.............  62   President, Chairman of the Board and Director
A. Gary Frumberg..........  64   Executive Vice President and Director
Richard R. Higgins........  59   Executive Vice President and Director
Sydney Stein..............  62   Director
Duncan Shirreff...........  46   Director
Scott Cunningham..........  63   Director
Joseph A. Gemmo...........  52   Vice President, Chief Financial Officer and
                                   Assistant Secretary
Paul E. Hoffmann..........  51   Secretary and Treasurer
Ronald J. Dintemann.......  54   Vice President-Operations
Harvey Farber.............  57   Senior Vice President-Flavor Division


      The business experience of each of the persons listed above for at least
the last five years is as follows:

      Philip Rosner has been the President and Chairman of the Board of the
Company since its inception in 1989. He has been engaged in the flavor and
fragrance industry for over 45 years. Before 1989, Mr. Rosner was the President
of Globe Extracts, Inc. and, for 15 years before that, the President of Felton
Worldwide, Inc., both of which produced and marketed flavors and fragrances.

      A. Gary Frumberg has been the Executive Vice President of the Company
since 1989. Prior to 1989, Mr. Frumberg served as Vice President-International
Sales of Felton Worldwide, Inc.

      Richard R. Higgins has been a Director of the Company since June 1996, and
an Executive Vice President of the Company and President of the Company's Seafla
Division since December 1995. Prior to that, Mr. Higgins was President of
Seafla, Inc. from 1980 until that business was acquired by the Company in
December 1995.

      Sydney Stein has been a Director of the Company since 1993. Since 1974,
Mr. Stein has been President of Syco Holdings Ltd., a Montreal-based retail
chain. In addition, from March 1991 to May 1994, Mr. Stein was President of
Kasyco, Inc., a Montreal-based wholesaler.

      Duncan Shirreff has been a Director of the Company since 1994. From 1994
through February 1998, Mr. Shirreff was also the Resident Director of the
Toronto Branch of the Canadian merchant banking firm of CM Oliver & Company
Limited in charge of corporate finance and European capital markets. Since
February 1998, Mr. Shirreff has been employed by Taurus Capital Markets Limited.
From 1991 to 1994, he was an independent financial consultant to various
corporations. Prior to 1991, Mr. Shirreff served as a Director of, and in senior
executive positions with, Scotia McLeod, Inc., a Toronto merchant banking firm.

      Scott Cunningham has been a Director of the Company since February 1997.
Since 1993, Dr. Cunningham has been President of Stonehouse Development Co., a
food technology company, and since 1986 he has been a Managing Director of
Interlaken Capital, Inc., a management consulting firm specializing in the food
and other industries.

      Joseph A. Gemmo has been Vice President and Chief Financial Officer of the
Company since August 1996 and Assistant Secretary since October 1997. From
January 1994 to April 1996, Mr. Gemmo was the Chief Financial Officer of
Bio-Botanica, Inc., a developer and manufacturer of herbal extracts. Prior to
that, Mr. Gemmo was the Chief Financial Officer of General Aerospace Materials
Corp. from 1989 to 1994.

      Paul E. Hoffmann has been the Secretary and Treasurer of the Company since
1990 and was a Director of the Company until June 1996. Before he joined the
Company, Mr. Hoffmann was Vice President, Finance of Globe Extracts, Inc. for
more than 8 years.

      Ronald J. Dintemann has been Vice President-Operations of the Company
since May 1989 after serving as Vice President-Operations of Globe Extracts,
Inc.


                                       12
<PAGE>

      Harvey Farber has been Senior Vice President-Flavor Development of the
Company from October 1995 through October 1997, at which time he became Senior
Vice President - Flavor Division. Before he joined the Company, he was the Vice
President-Flavor Development at J. Manheimer Inc. for 12 years.

      All directors of the Company serve until their successors are elected and
qualified. Officers serve at the discretion of the Board of Directors, subject
to rights, if any, under contracts of employment. There are no family
relationships among the directors and executive officers of the Company. See
"Director Compensation" and "Executive Compensation."

Meetings of the Board of Directors and Committees

      The business affairs of the Company are managed under the direction of the
Board of Directors. Members of the Board of Directors are informed about the
Company's affairs through presentations, reports and documents distributed to
them, through operating and financial reports routinely presented at meetings of
the Board of Directors and committee meetings, and through other means. In
addition, directors of the Company discharge their duties throughout the year
not only by attending Board of Directors meetings but also through personal
meetings and other communications, including telephone contact with management
and others regarding matters of interest and concern to the Company.

Board Committees

      The Company's Board of Directors has an Audit Committee. The Company does
not have either a compensation or a nominating committee. The members of the
Audit Committee are appointed by the Board of Directors.

      Audit Committee. The Audit Committee recommends to the Board of Directors
the firm to be selected each year as independent auditors of the Company's
financial statements and to perform services related to such audit. The Audit
Committee also has responsibility for (i) reviewing the scope and results of the
audit with the independent auditors, (ii) reviewing the Company's financial
condition and results of operations with management, (iii) considering the
adequacy of the internal accounting, bookkeeping and control procedures of the
Company, and (iv) reviewing any non-audit services and special engagements to be
performed by the independent auditors and considering the effect of such
performance on the auditors' independence. The current members of the Audit
Committee are Messrs. Stein, Shirreff and Rosner.

      The Company has not established a nominating committee and/or a corporate
governance committee as recommended by the TSE Report (as defined herein),
however, the Company believes that the nomination of directors and other issues
normally considered by these committees can be effectively managed by the Board
of Directors due to its relatively small size, or by the Audit Committee which
is composed substantially of "unrelated directors." See "Statement of Corporate
Governance Practices."

Director Compensation

      Directors are reimbursed for reasonable expenses actually incurred in
connection with attending each formal meeting of the Board of Directors or any
committee thereof. In addition, each outside director of the Company is paid a
$10,000 annual fee plus $500 for each formal meeting attended. For the year
ended December 31, 1997, the Company's outside directors waived their annual
fees.

Statement of Corporate Governance Practices

      The Company's Common Stock is listed on the Toronto Stock Exchange. The
by-laws of the TSE require listed companies to disclose their approach to
corporate governance on an annual basis and within the context of certain
guidelines proposed in the December 1994 report issued by The Toronto Stock
Exchange Committee on Corporate Governance in Canada (the "TSE Report"). The
report's focus is on the importance of each company addressing the governance
issue in its own context and the receipt by the company's shareholders of an
explanation for each company's approach to governance. There is no requirement
for the Company to comply with the guidelines in the TSE Report, and the report
itself recognizes that each company should have the flexibility to develop its
own approach to corporate governance.

      Of particular significance is the fact that the Company is organized under
the laws of the State of Delaware, and therefore is subject to that State's laws
and principles of corporate governance. The Company is of the opinion that its
approach to corporate governance is in compliance with Delaware law and
therefore is also in accordance with the fundamental principles upon which the
TSE Report was based. Moreover, the Company's Board of Directors has considered
the guidelines in the TSE Report and believes that the Company's approach to
corporate governance is working effectively. In particular, the Board of
Directors believes that many of the guidelines in the TSE Report are better
suited to larger companies and companies with securities that are more widely
held than those of the Company.


                                       13
<PAGE>

Unrelated Directors

      Much of the discussion in the TSE Report focuses on the composition of a
company's Board of Directors and, in particular, the number of "unrelated
directors." In the TSE Report, an "unrelated director" is a director who is free
from any interest and any business or other relationship which could, or could
reasonably be perceived to, materially interfere with that director's ability to
act with a view to the best interests of the Company, other than an interest
arising from such director's status as a shareholder. The TSE Report also
focuses on the importance of having an appropriate portion of the Board of
Directors which is free from any interest or relationship with a "significant
shareholder" of the company (i.e., a shareholder controlling more than 50% of
the company's common stock). The Company does not have a "significant
shareholder" within the meaning of the TSE Report.

      The Company believes that three (i.e., Messrs. Stein, Shirreff and
Cunningham) of its six directors are "unrelated" within the meaning of the TSE
Report. While the number of unrelated directors is less than the majority
suggested by the TSE Report, the Company's Board of Directors believes that the
number is appropriate for the effective operations of the Company. The Board of
Directors believes that the presence of the President/Chairman of the Board of
Directors and the Executive Vice Presidents on the Board of Directors is key to
the effective corporate governance of the Company. The knowledge that each of
these directors brings to the Board of Directors and the insight that each
offers into his particular area of responsibility within the Company have been
instrumental in creating a Board of Directors that functions effectively.

      The Company's Board of Directors believes that its relationship with
management in supervising the business and affairs of the Company is
appropriate, and that the focus of the TSE Report on a majority of the Board
being comprised of unrelated directors is neither necessary nor desirable for
the Company under its present circumstances. The significant contributions of
current management to the formation and continued growth of the Company and the
confidence which the Board of Directors understands the Company's shareholders
have in management are factors supporting the Board of Directors' opinion that
additional independence is not required.

      The Board of Directors has no formal policy setting out which specific
matters must be brought by the President and management and the Board of
Directors for approval, although there is a clear understanding between
management and the Board of Directors through historical and accepted legal
practice that all transactions or other matters of a material nature generally
should be presented by management for approval by the Board of Directors.

      Management is available to shareholders to respond to questions and
concerns on a prompt basis. The Board of Directors believes that generally the
Company's communications with shareholders and others interested in the Company
with respect to addressing their inquiries about the Company are responsive.

Expectations of Management

      The Board of Directors works closely with members of management. The Board
of Directors' access to information relating to the operations of the Company,
through membership on the Board of Directors of several key members of
management and, as necessary, attendance by other members of management at the
request of the Board of Directors, are key elements to the effective and
informed functioning of the Company's Board of Directors.

      The Board of Directors expects the Company's management to take the
initiative in identifying opportunities and risks affecting the Company's
business and finding means to deal with such opportunities and risks for the
benefit of the Company. The Board of Directors is confident that the Company's
management responds ably to this expectation.

Limitation of Personal Liability and Indemnification

      The General Corporation Law of Delaware permits a corporation through its
certificate of incorporation to eliminate the personal liability of its
directors to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director, with certain exceptions. The exceptions include
a breach of fiduciary duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, improper
declarations of dividends and transactions from which the directors derived an
improper personal benefit. The Company's Certificate of Incorporation, as
amended, exonerates its directors from monetary liability to the fullest extent
permitted by this statutory provision but does not restrict the availability of
non-monetary and other equitable relief.

      The Company's Certificate of Incorporation, as amended, and By-laws
provide that the Company shall indemnify its directors and officers to the
fullest extent permitted by Delaware law.


                                       14
<PAGE>

Compliance With Section 16(a) of the Securities Exchange Act of 1934

      The Securities and Exchange Commission (the "Commission") has
comprehensive rules relating to the reporting of securities transactions by
directors, officers and shareholders who beneficially own more than 10% of the
Company's Common Stock (collectively, the "Reporting Persons"). These rules are
complex and difficult to interpret. Based solely on a review of Section 16
reports received by the Company from Reporting Persons, the Company believes
that no Reporting Person has failed to file a Section 16 report on a timely
basis during the most recent fiscal year.


                                       15
<PAGE>

ITEM 10-EXECUTIVE COMPENSATION

            The following summary compensation table sets forth the aggregate
compensation paid to or earned by the Company's Chairman of the Board and
President and the other four most highly compensated executive officers of the
Company (other than the Chairman of the Board and President) whose total annual
salaries and bonuses exceeded $100,000 for the year ended December 31, 1997 (the
"Named Executive Officers"):

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Name and Principal Position
---------------------------                                                   Long Term
                                                                            Compensation
                                                                            -------------
                                                                                 Awards                 Payouts
                                                                Annual         Securities              All Other
                                                             Compensation      Underlying           Compensation(1)
                                                 Year           Salary        Options/SARs
                                                 ----           ------        ------------          ----------------
<S>                                              <C>           <C>            <C>                       <C>
Philip Rosner............................        1997          $225,962            --                   $16,820
Chairman and President                           1996           235,000       100,000(2)(3)              17,216
                                                 1995           200,000            --                    16,001

A. Gary Frumberg.........................        1997           192,308            --                    17,761
Executive Vice President                         1996           199,903       100,000(2)(3)              17,010
                                                 1995           164,000            --                    12,305

Richard R. Higgins.......................        1997           158,164            --                    16,805
Executive Vice President                         1996           150,000            --                    16,757
                                                 1995             5,769            --                     1,261

Harvey Farber............................        1997           163,461        75,000(4)                 10,436
Senior Vice President-Flavor Division            1996           161,509        10,000                     8,429
                                                 1995            36,821            --                     1,850

Ronald J. Dintemann......................        1997           129,808        25,000(5)                 15,500
Vice President-Operations                        1996           134,085        75,000(2)(3)              22,580
                                                 1995            97,176            --                    10,909
</TABLE>
-----------
(1)   Represents Company reimbursed automobile expenses of such executive.

(2)   Represents options granted in 1994 under the Company's 1993 Option Plan,
      including options granted to Messrs. Rosner, Frumberg and Dintemann, and
      options granted in April 1994 to certain of the Company's directors,
      executive officers and employees. The Company obtained stockholder
      approval of the reduction in exercise price of such stock options in
      October 1996. See "1993 Option Plan."

(3)   Represents those stock options which the Company granted to the respective
      executive officers in 1994. The exercise prices of such options were
      reduced in October 1996 pursuant to stockholder approval. See "1996 Option
      Plan."

(4)   Includes (a) 25,000 shares of Common Stock granted to Mr. Farber as
      additional compensation pursuant to his amended employment agreement and
      (b) 50,000 shares of Common Stock issuable to Mr. Farber pursuant to stock
      options granted under the 1996 Stock Option Plan. See "Employment
      Agreements."

(5)   Represents 25,000 shares of Common Stock issuable to Mr. Dintemann
      pursuant to stock options granted under the 1996 Stock Option Plan.


                                       16
<PAGE>

Option Grants in 1997

      The following table sets forth certain information concerning individual
option grants during the year ended December 31, 1997 to each of the Named
Executive Officers:

                              Option Grants in 1997

<TABLE>
<CAPTION>
                                                                                                             Potential Realizable
                                                                                                              Value at Assumed
                                                                                                               Annual Rates of
                                                                                                                 Stock Price
                                                                                                               Appreciation for
                                                                                                                Option Term(1)
                                                                                                                --------------
                                                    Percentage of Total
                                                      Options Granted
                                         Options       to Employees in   Exercise Price   Expiration
Name                                     Granted         Fiscal Year       Per Share         Date             5%             10%
----                                     -------         -----------       ---------         ----             --             ---
<S>                                      <C>               <C>              <C>              <C>            <C>             <C>
Philip Rosner .....................          --              --                   --              --              --              --
A. Gary Frumberg ..................          --              --                   --              --              --              --
Richard R. Higgins ................          --              --                   --              --              --              --
Harvey Farber .....................      50,000            14.0%            $   1.31         2/27/07        $ 41,193        $104,390
Ronald J. Dintemann ...............      25,000             7.0%            $ 1.6875         6/25/07        $ 26,531        $ 67,235
</TABLE>

                                   ----------

(1) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future price of its Common Stock.

Aggregate Option Exercises in 1997 and 1997 Year-End Option Values

            The following table provides certain information regarding stock
option ownership and exercises by the Named Executive Officers, as well as the
number and assumed value of exercisable and unexercisable options held by those
persons at December 31, 1997:

<TABLE>
<CAPTION>
                               Number of                         Number of Unexercised           Value of Unexercised
                                Shares                                 Options at              In-the-Money Options at
                              Acquired on         Value            December 31, 1997             December 31, 1997($)
Name                           Exercise        Realized($)     Exercisable/Unexercisable     Exercisable/Unexercisable(1)
----                           --------        -----------     -------------------------     ----------------------------
<S>                               <C>              <C>              <C>                            <C>
Philip Rosner...............      --               --               75,000/25,000                  $49,500/16,500
A. Gary Frumberg............      --               --               75,000/25,000                   49,500/16,500
Richard R. Higgins..........      --               --                   --/--                           --/--
Harvey Farber...............      --               --               15,000/45,000                      750/750
Ronald J. Dintemann.........      --               --               56,250/43,750                   40,500/13,500
</TABLE>
----------
(1)   Value of exercisable "in-the-money" options is equal to the difference
      between the closing bid price per share of the Common Stock on the TSE at
      December 31, 1997 (U.S. $1.30) and the option exercise price per share
      multiplied by the number of shares subject to options.

Employment Agreements

      In October 1995, the Company entered into five-year employment agreements
with Messrs. Rosner and Frumberg which provide such executives with annual
salaries (adjustable in accordance with the Consumer Price Index) of $235,000
and $200,000, respectively. Each agreement contains, among other things,
customary termination and confidentiality provisions.


                                       17
<PAGE>

      In October 1995, the Company entered into a three-year employment
agreement with Mr. Farber. Pursuant to the employment agreement, Mr. Farber is
entitled to receive an annual salary of $160,000. In addition, the employment
agreement provides that Mr. Farber may receive an annual bonus, payable at the
sole discretion of the Company. In December 1997, the employment agreement was
amended to provide that Mr. Farber will receive a base salary of $176,800 per
annum commencing January 1, 1998 for the balance of the term of the agreement.
Pursuant to such amendment, in 1997 the Company issued to Mr. Farber 25,000
shares of Common Stock as additional compensation.

      In December 1995, the Company entered into an employment agreement with
Mr. Higgins. Pursuant to the employment agreement, Mr. Higgins is entitled to
receive an annual salary of $150,000 plus an amount, each year, equal to 2% of
the Company's sales produced but not generated by the Seasoning Division in that
year. However, Mr. Higgins' annual compensation is not to exceed the higher of
Mr. Rosner's annual compensation or $200,000. Pursuant to the Seafla
Acquisition, Mr. Higgins also received an aggregate of 750,000 shares of Common
Stock. See "Business-History".

      In January 1996, the Company entered into a five-year employment agreement
with Ronald J. Dintemann which provides an annual salary (adjustable in
accordance with the Consumer Price Index) of $135,000 per annum. The agreement
contains, among other things, customary termination and confidentiality
provisions.

      On August 2, 1996, the Company entered into a three-year employment
agreement with Joseph A. Gemmo to serve as the Company's Vice President and
Chief Financial Officer effective August 19, 1996. Pursuant to such agreement,
Mr. Gemmo is paid an annual salary of $115,000 and received an option to
purchase 100,000 shares of the Company's Common Stock. In addition, the
employment agreement provides that Mr. Gemmo may receive an annual bonus,
payable at the sole discretion of the Company. On December 1, 1997, the
Company's Board of Directors authorized the Company to reprice the option
granted in August 1996 to purchase 100,000 shares of the Company's Common Stock
from $2.0625 to $1.31, the current market price at the time of repricing, and to
pay Mr. Gemmo a minimum cash bonus of $50,000 in the event the Company has a
change of control.


1993 Option Plan

      In November 1993, the Company adopted the 1993 Option Plan (the "1993
Plan") pursuant to which the Company may grant options to its employees to
purchase up to 500,000 shares of Common Stock. The options granted under the
1993 Plan may be exercised during the ten year period after they are granted, at
an exercise price equal to the mean between the high and low selling prices of
the Company's Common Stock on the TSE on the date of grant. Options granted to
any person who beneficially owns ten percent (10%) or more of the Common Stock
may not be exercised until after the fifth anniversary of the date of the grant
and must be granted at an exercise price equal to 110% of the market price at
the date of the grant.

1996 Option Plan

      In 1996, the Board adopted the 1996 Option Plan. Under the 1996 Option
Plan, the maximum number of shares of Common Stock that may be subject to
options may not exceed an aggregate of 1,000,000 shares. The maximum number of
shares may be adjusted in certain events, such as a stock split, reorganization
or recapitalization. Employees (including officers and directors who are
employees) of the Company or its subsidiaries are eligible for the grant of
incentive options under the 1996 Option Plan. Directors who are not employees or
officers are not eligible to receive incentive options. Options may also be
granted to other persons, provided that such options shall be non-qualified
options. In the event of incentive options, the aggregate fair market value of
the Common Stock with respect to which such options become first exercisable by
the holder during any calendar year cannot exceed $100,000. This limit does not
apply to non-qualified options. To the extent an option that otherwise would be
an incentive option exceeds this $100,000 threshold, it will be treated as a
non-qualified option.

      The Company will receive no monetary consideration for the grant of
options under the 1996 Option Plan. In the case of an incentive option, the
exercise price cannot be less than the fair market value (as defined in the 1996
Option Plan) of the Common Stock on the date the option is granted and, if an
optionee is a stockholder who beneficially owns 10% or more of the outstanding
Common Stock, the exercise price of incentive options may not be less than 110%
of the fair market value of the Common Stock. The term of an option cannot
exceed ten years and, in the case of an optionee who owns 10% or more of the
outstanding Common Stock, cannot exceed five years.


                                       18
<PAGE>

      The 1996 Option Plan was adopted by the Board of Directors and was
subsequently approved by the stockholders at the Company's special meeting of
stockholders held on October 30, 1996. The 1996 Option Plan will terminate
automatically and no options may be granted more than ten years after the date
the 1996 Option Plan was approved by the Company's Board of Directors. The 1996
Option Plan may be terminated at any prior time by the Board of Directors.
Termination of the 1996 Option Plan will not affect options that were granted
prior to the termination date.

      As of March 24, 1998, options to purchase an aggregate of approximately
1,201,000 shares of the Common Stock were outstanding under the 1993 and 1996
Stock Option Plans.

Consulting Agreement

      In October 1995, the Company entered into a one-year consulting agreement
with Strategic Growth International, Inc. ("SGI"), pursuant to which SGI, on
behalf of the Company, agreed to (i) arrange and conduct meetings with the
professional investment community and investor groups, (ii) develop and
implement a comprehensive investor relations program, and (iii) provide
professional staff services to assist the Company in carrying out its programs
and objectives (the "Consulting Agreement"). Under the Consulting Agreement, the
Company paid SGI a retainer fee of $8,000 per month plus reasonable expenses and
issued to SGI warrants (the "Warrants") to purchase an aggregate of 600,000
shares of Common Stock at an initial exercise price of $0.56, the market price
of the Common Stock on the TSE on the date of issuance, subject to adjustment in
certain circumstances pursuant to the terms and conditions set forth in the
Warrant Agreement dated as of October 25, 1995, as amended (the "Warrant
Agreement").

      Under the Warrant Agreement, the Company retained the right, exercisable
at its option at any time after December 31, 1999, to redeem all, but not part,
of the Warrants upon not less than thirty (30) days notice to the holder
thereof, at a redemption price of one cent ($.01) per Warrant, in the event that
the average trading price on the TSE of the Company's Common Stock equals or
exceeds Cdn. $1.50 for 30 consecutive trading days prior to the date of such
notice. The Warrant Agreement expires on October 24, 2000.

      In October 1996, the Consulting Agreement expired by its terms. The
Company continued to engage SGI for its services under the Consulting Agreement
pursuant to its terms on a month to month basis up until October 1997 at which
time the arrangement was terminated.


                                       19
<PAGE>

ITEM 11-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth certain information as of March 24, 1998
regarding the beneficial ownership of Common Stock by (A) each person known by
the Company to own beneficially more than 5% of the Common Stock, (B) each
director of the Company, (C) each of the Named Executive Officers, and (D) all
executive officers and directors of the Company as a group (10 persons):

<TABLE>
<CAPTION>
                                                                         Number of Shares                 Percentage
Name                                                                   Beneficially Owned(1)          Beneficially Owned
----                                                                   ---------------------          ------------------
<S>                                                                          <C>                            <C>
Philip Rosner(2)..................................................           2,258,709 (3)(4)               18.1%
A. Gary Frumberg(2)...............................................           1,147,199 (3)                  11.4%
Richard R. Higgins(2).............................................             931,500                       7.5%
Stanley Altschuler................................................             887,280 (5)                   7.1%
Richard E. Cooper.................................................             787,500 (6)                   6.3%
Scott Cunningham(2)...............................................              20,000                        *
Sydney Stein(2)...................................................             100,000 (8)                    *
Duncan Shirreff(2)................................................               1,000                        *
Ronald J. Dintemann(2)............................................             125,361 (7)                   1.0%
Harvey Farber(2)..................................................              44,732 (9)                    *
All directors and executive officers as a group (10 persons)......           5,180,794                      41.1%
</TABLE>
-----------
*     Less than 1%
(1)   Unless otherwise indicated, to the Company's knowledge the nature of the
      beneficial ownership for all shares of Common Stock listed above is sole
      voting and investment power.

(2)   The business address of Messrs. Rosner and Frumberg is 10 Edison Street
      East, Amityville, New York 11701. The business address of Mr. Higgins is
      999 Tech Drive, Milford, Ohio 45150. The business addresses of each of
      Messrs. Cunningham, Stein, Shirreff, Dintemann and Farber is c/o
      Technology Flavors & Fragrances, Inc., 10 Edison Street East, Amityville,
      New York 11701.

(3)   Includes (a) 75,000 shares of Common Stock issuable upon the exercise of
      options granted on April 8, 1994 to each of Messrs. Rosner and Frumberg to
      purchase 100,000 shares of Common Stock and (b) 647,123 and 428,399 shares
      of Common Stock of Messrs. Rosner and Frumberg, respectively, held in
      escrow until October 26, 1998 pursuant to requirements imposed in
      connection with the Company's initial public offering in Canada under the
      Ontario Securities Act. The shares held in escrow generally may not be
      sold, transferred or pledged without the consent of the Ontario Securities
      Commission.

(4)   Includes 36,438 shares of Common Stock held by Mr. Rosner's wife. Mr.
      Rosner disclaims beneficial ownership of the shares held by his wife.

(5)   Mr. Altschuler directly owns and holds 287,280 shares of Common Stock.
      Because Mr. Altschuler owns 50% of the common stock of SGI, he is deemed
      to own the 600,000 shares of Common Stock underlying the warrants held by
      SGI, as such warrants are currently exercisable. Accordingly, Mr.
      Altschuler is deemed to beneficially own 887,280 shares of Common Stock.
      Mr. Altschuler has sole voting and dispositive power over the 287,280
      shares of Common Stock which he directly holds. Mr. Altschuler shares
      dispositive power over the SGI Warrants, and, upon exercise of such
      warrants, would share voting power over the resulting Common Stock.

(6)   Mr. Cooper directly owns and holds 187,500 shares of Common Stock. Because
      Mr. Cooper directly owns 50% of the common stock of SGI, he is deemed to
      beneficially own the 600,000 shares of Common Stock underlying warrants
      held by SGI, as such warrants are currently exercisable. Accordingly, Mr.
      Cooper is deemed to beneficially own 787,500 shares of Common Stock. Mr.
      Cooper has sole voting and dispositive power over the 187,500 shares of
      Common Stock which he directly holds. Mr. Cooper shares dispositive power
      over the SGI Warrants, and, upon exercise of such warrants, would share
      voting power over the resulting Common Stock.

(7)   Includes ten-year options to purchase 56,250 shares of Common Stock
      granted to Mr. Dintemann on April 8, 1994 and excludes options to purchase
      an additional 18,750 shares that have not yet vested.

(8)   Represents ten-year options to purchase 100,000 shares of Common Stock
      granted to Mr. Stein on April 8, 1994.

(9)   Includes 15,000 shares of Common Stock issuable upon options granted to
      Mr. Farber.


                                       20
<PAGE>

ITEM 12-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Principal Shareholders

      On December 6, 1995, the Company consummated the Seafla Acquisition. As
consideration in such transaction, the Company paid $3,000,000 and issued a
promissory note in the amount of $888,019. Of such amount, $177,604 was to be
payable on January 1, 1997 and the remaining four installments were to be
payable on each January 1 thereafter through 2001. In March 1997 and in March
1998, the Seafla Note was amended in order to extend the Company's obligation to
pay the first principal installment of $177,604 until January 1, 2000; and the
remaining four installments are due on January 1 of each year through January
2004. Outstanding amounts under the Seafla Note bear interest at a rate of 12%
per annum. Under the Seafla Note, as amended in March 1998, the Company is
required to pay monthly interest installments equal to $10,000 per month against
all accrued and unpaid interest commencing February 15, 1998 until all accrued
and unpaid interest under the Note has been fully paid. The Company funded the
cash portion of the Seafla purchase price through a term loan in the amount of
$3,500,000 with interest payable monthly at one and one-half percent above the
bank's prime rate. Concurrently with the closing of the acquisition, the Company
entered into a five-year employment agreement with Mr. Higgins, the President of
Seafla, to be the President of the Company's Seasoning Division. See "Executive
Compensation-Employment Agreements."

      In connection with the Seafla Acquisition, the Company assumed the lease
of Seafla's 37,000 square foot facility in Milford, Ohio, with a term expiring
in 2014. The owner of this leased facility is a partnership in which Mr. Higgins
is a partner. The annual rental paid by the Company in respect of this facility
is $192,000. In connection with the Seafla Acquisition, the Company obtained a
report of an independent appraisal firm which concluded that the rental paid by
the Company is at or very close to market value. See "Description of Property."

Transactions with Directors and Executive Officers

      In 1997, the Company amended certain of its contractual arrangements with
Mr. Harvey Farber, the Company's Senior Vice President - Flavor Division and Mr.
Joseph A. Gemmo, the Company's Chief Financial Officer. See "Executive
Compensation - Employment Agreements."

      The following table sets forth certain information regarding loans made by
the Company to its directors and executive officers which were outstanding as of
the end of the fiscal year ended December 31, 1997 (collectively, the "Loans").
As of March 24, 1998, the aggregate indebtedness owed to the Company pursuant
to the Loans was $274,513, including accrued interest thereon. The Loans are
unsecured, bear interest at a rate of 8% per annum and are due in installments
of principal and interest through December 31, 1999.

                       Table of Indebtedness of Directors
                        and Executive Officers of Company

<TABLE>
<CAPTION>
                                                                     Amount                        Amount
                                                                  Outstanding                   Outstanding
                                         Involvement                 as of                         as of
Name and Principal Position               of Issuer           December 31, 1997(1)           March 24, 1998(1)
---------------------------               ---------           --------------------           -----------------
<S>                                        <C>                       <C>                          <C>
Philip Rosner......................        Lender                    $195,096                     $191,929
A. Gary Frumberg...................        Lender                      84,424                       82,584
</TABLE>

----------
(1)   Includes accrued interest.


                                       21
<PAGE>

ITEM 13-EXHIBITS AND REPORTS ON FORM 8-K.

            (a) The exhibits listed below are filed as part of this Annual
Report on Form 10-KSB.

    Exhibit                 Document
    Number                  --------
    ------
      3.1   Certificate of Incorporation and By-Laws                       (A)
      4.1   Form of Certificate Representing Share of Common Stock         (A)
      5.1   Opinion of Baer Marks & Upham LLP.
     10.1   Lease for Property in Amityville, New York.                    (A)
     10.2   1993 Employee Stock Option Plan.                               (A)
     10.3   Seafla Inc. Asset Purchase Agreement dated December 6, 1995.   (B)
     10.4   Purchase Agreement, dated as of October 17, 1996, between
            the Company and the Purchasers listed herein.                  (D)
     10.5   General Security Agreement, dated as of October 17, 1996,
            between the Company and the Purchasers listed therein.         (D)
     10.6   Class A Warrant Certificates.                                  (D)
     10.7   Class B Warrant Certificates.                                  (D)
     10.8   Letter Agreement, dated as of November 1, 1996, by and
            between the Company and the Purchasers listed therein.         (D)
     10.9   Escrow Agreement relating to shares of Messrs. Rosner
            and Frumberg.                                                  (A)
    10.10   Amendment to Amended and Restated Promissory Note.             (E)
    10.11   Recognition, Subordination & Limited Waiver Agreement,
            dated October 17, 1996, by and among the Company,
            North Fork Bank and the Purchasers under the Purchase
            Agreement dated October 17, 1996.                              (E)
    10.12   Northfork Bank Consolidated, Modified Revolving Credit
            Note, dated October 22, 1996.                                  (E)
    10.13   Waiver and Amendment, dated April 9, 1997 between North
            Fork Bank and the Company.                                     (E)
    10.14   Amendment to Consolidated, Modified Revolving Note.            (E)
    10.15   Warrant Certificate to North Fork Bank.                        (E)
    10.16   1996 Employee Stock Option Plan                                (F)
    10.17   Credit Agreement, dated as of October 16, 1997, among the
            Company and The Chase Manhattan Bank.                          (F)
    10.18   Guarantee, dated October 16, 1997, given by Technology
            Flavors & Fragrances, Inc. (Canadian Subsidiary) to
            The Chase Manhattan Bank.                                      (F)
    10.19   Intercreditor Agreement, dated as of October 16, 1997,
            among The Chase Manhattan Bank, Seafla, Inc. and the Company.  (F)
    10.20   Security Agreement dated as of October 16, 1997, between
            the Company and The Chase Manhattan Bank.                      (F)
   *10.21   Waiver and Amendment, dated March 27, 1998 between The
            Chase Manhattan Bank and the Company.
     11.1   Statement re: Computation of Per Share Earnings (not
            required pursuant to Item 601(b) of Regulation S-B)
     16.1   Letter on Change of Certified Accountants                      (B)
     16.2   Letter dated June 11, 1996 from Coopers & Lybrand, L.L.P.      (C)
     21.1   Subsidiaries of the Company.                                   (F)
     *27.   Financial Data Schedule.

(A) Incorporated by reference to the Company's Registration Statement on Form
10-SB (File No. 0-26682) filed with the Commission on August 28, 1995.

(B) Incorporated by reference to the Company's Report on Form 8-K filed with the
Commission on December 20, 1995.

(C) Incorporated by reference to the Company's Report on Form 8-K, filed with
the Commission on June 12, 1996.

(D) Incorporated by reference to the Company's Report on Form 8-K filed with the
Commission on November 4, 1996.

(E) Incorporated by reference to the Company's Report on Form 10-KSB, As Amended
(File No. 0-26682) filed with the Commission for the year ended December 31,
1996.

(F) Incorporated by reference to the Company's Report on Form SB-2 (File No.
0-26682) filed with the Commission on January 23, 1998.

* Filed herewith.

      (b) Reports on Form 8-K.

      The following reports on Form 8-K were filed during the fourth quarter of
      the year ended December 31, 1997: None


                                       22
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                   Technology Flavors & Fragrances, Inc.

Dated: March 30, 1998              By:            /s/ JOSEPH A. GEMMO
                                      ------------------------------------------
                                                 Joseph A. Gemmo
                                      Vice President and Chief Financial Officer

In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
          Signature                         Title                                   Date
          ---------                         -----                                   ----
<S>                           <C>                                              <C>
     /s/ PHILIP ROSNER        Chairman of the Board, President                 March 30, 1998
---------------------------   and Director (Principal Executive
         Philip Rosner        Officer)

    /s/ A. GARY FRUMBERG      Executive Vice President and Director            March 30, 1998
---------------------------
        A. Gary Frumberg

   /s/ RICHARD R. HIGGINS     Executive Vice President and Director            March 30, 1998
---------------------------
       Richard R. Higgins

   /s/ JOSEPH A. GEMMO        Vice President and Chief Financial               March 30, 1998
---------------------------   (Principal Financial and Accounting Officer)
       Joseph A. Gemmo

  /s/ PAUL E. HOFFMANN        Treasurer and Secretary                          March 30, 1998
---------------------------
      Paul E. Hoffmann

    /s/ SYDNEY STEIN          Director                                         March 30, 1998
---------------------------
        Sydney Stein

  /s/ DUNCAN SHIRREFF         Director                                         March 30, 1998
---------------------------
      Duncan Shirreff

/s/ SCOTT M. CUNNINGHAM       Director                                         March 30, 1998
---------------------------
    Scott M. Cunningham
</TABLE>


                                       23
<PAGE>

                          Index to Financial Statements


                                                                            Page
                                                                            ----

      Report of Independent Auditors                                        F-2

      Consolidated Balance Sheets as of December 31, 1997 and 1996          F-3

      Consolidated Statements of Operations for the Years Ended
      December 31, 1997 and 1996                                            F-4

      Consolidated Statements of Stockholders' Equity for the Years
      Ended December 31, 1997 and 1996                                      F-5

      Consolidated Statements of Cash Flows for the Years Ended
      December 31, 1997 and 1996                                            F-6

      Notes to Consolidated Financial Statements for the Years Ended
      December 31, 1997 and 1996                                            F-8


                                      F-1
<PAGE>

                         Report of Independent Auditors


To the Stockholders and Board of Directors of
Technology Flavors & Fragrances, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Technology
Flavors & Fragrances, Inc. and Subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Technology Flavors & Fragrances, Inc. and Subsidiaries at December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.



                                             /s/ ERNST & YOUNG LLP

Melville, New York
March 27, 1998


                                      F-2
<PAGE>

                      Technology Flavors & Fragrances, Inc.
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                                             At December 31,
                                                                                                          1997             1996
                                                                                                          ----             ----
<S>                                                                                                  <C>              <C>
                                     ASSETS
Current assets:
    Cash and cash equivalents ..................................................................     $    582,972     $    233,566
    Receivables (less allowance for doubtful accounts of $165,000 in 1997
         and $150,000 in 1996) (Note 3) ........................................................        2,693,081        3,529,997
    Inventories (Note 4) .......................................................................        3,740,480        4,025,586
    Prepaid expenses and other current assets ..................................................           68,440           97,617
                                                                                                     ------------     ------------
        Total current assets ...................................................................        7,084,973        7,886,766
Fixed assets, net (Note 5) .....................................................................        1,276,619        1,401,062
Intangible assets, net (Note 6) ................................................................        5,558,993        6,205,754
Other assets ...................................................................................          174,989          328,670
Notes receivable from related parties (Note 7) .................................................          279,520          281,011
                                                                                                     ------------     ------------
        Total assets ...........................................................................     $ 14,375,094     $ 16,103,263
                                                                                                     ============     ============

                                   LIABILITIES
Current liabilities:
    Accounts payable ...........................................................................     $  1,294,429     $  2,907,558
    Accrued expenses ...........................................................................          615,217          939,636
    Current portion of long-term debt (Note 8) .................................................          177,212           19,078
                                                                                                     ------------     ------------
        Total current liabilities ..............................................................        2,086,858        3,866,272
Long-term debt (Note 8) ........................................................................        6,704,294        6,840,529
Deferred rent payable ..........................................................................           34,367           22,007
                                                                                                     ------------     ------------
                                                                                                        8,825,519       10,728,808
Commitments and Contingencies (Note 10)
                              STOCKHOLDERS' EQUITY
Common stock:
    $.01 par value, authorized 20,000,000 shares, issued 12,374,623 and 11,993,406, respectively          123,746          119,934
Paid-in capital ................................................................................       10,138,161        9,409,706
Accumulated deficit ............................................................................       (4,476,048)      (3,827,890)
Unearned compensation arising from stock awards ................................................         (236,284)        (317,295)
Treasury stock at cost - 36,438 shares of common stock in 1996 .................................               --          (10,000)
                                                                                                     ------------     ------------
           Total stockholders' equity ..........................................................        5,549,575        5,374,455
                                                                                                     ------------     ------------
           Total liabilities and stockholders' equity ..........................................     $ 14,375,094     $ 16,103,263
                                                                                                     ============     ============
</TABLE>

                             See accompanying notes.


                                      F-3
<PAGE>

                      Technology Flavors & Fragrances, Inc.

                      Consolidated Statements of Operations

                                                       For the years ended
                                                           December 31,
                                                 ------------------------------
                                                      1997              1996
                                                      ----              ----
Net sales ..................................     $ 23,684,307      $ 21,017,960
Cost of sales ..............................       14,541,681        13,155,260
                                                 ------------      ------------
           Gross profit ....................        9,142,626         7,862,700
                                                 ------------      ------------
Operating expenses:
    Selling ................................        3,614,635         3,543,130
    General and administrative .............        2,553,959         3,491,452
    Research and development ...............        1,928,941         1,971,770
    Amortization expense ...................          980,688           833,427
                                                 ------------      ------------
           Total operating expenses ........        9,078,223         9,839,779
                                                 ------------      ------------
Income (loss) from operations ..............           64,403        (1,977,079)
Interest expense, net ......................         (703,721)         (557,660)
                                                 ------------      ------------
Loss before provision for income taxes .....         (639,318)       (2,534,739)
Provision for income taxes .................           (8,840)           (2,874)
                                                 ------------      ------------
Net loss ...................................     $   (648,158)     $ (2,537,613)
                                                 ============      ============
Net loss per common share ..................     $       (.05)     $       (.21)
                                                 ============      ============
Weighted average shares outstanding ........       12,038,875        11,864,345
                                                 ============      ============

                             See accompanying notes.


                                      F-4
<PAGE>

                      Technology Flavors & Fragrances, Inc.

                 Consolidated Statements of Stockholders' Equity

                 For the years ended December 31, 1997 and 1996

<TABLE>
<CAPTION>

                                                                                                           Unearned
                                                   Common Stock                                          Compensation
                                             -----------------------        Paid-In      (Accumulated    Arising from
                                               Shares        Amount         Capital        Deficit)      Stock Awards
                                               ------        ------         -------        --------      ------------
<S>                                          <C>            <C>            <C>           <C>              <C>
Balance at December 31, 1995                 12,166,706     $121,667       9,457,251     $ (1,290,277)    $(398,306)
   Shares issued in connection
     with convertible debt
     financing                                  100,000        1,000         105,063
   Shares issued to broker in
     connection with Seafla
     acquisition                                100,000        1,000         150,500
   Amortization of unearned
     compensation                                                                                            81,011
   Cancellation of treasury stock              (373,300)      (3,733)       (303,108)
   Net loss                                                                                (2,537,613)
                                             ----------   ---------      -----------      -----------     ---------
Balance at December 31, 1996                 11,993,406      119,934       9,409,706       (3,827,890)     (317,295)
   Shares issued in connection
     with convertible debt financing            387,655        3,877         670,590
   Shares issued in connection
     with exercise of warrants                    5,000           50           2,750
   Shares issued in connection with
     employment agreement                        25,000          250          24,750
   Cancellation of treasury stock               (36,438)        (365)        ( 9,635)
   Amortization of unearned
     compensation                                                                                            81,011
  Warrants issued to a bank in
     connection with obtaining
     covenant modifications                                                   20,000
  Options issued for consulting services                                      20,000
   Net loss                                                                                  (648,158)
                                             ----------   ---------      -----------      -----------     ---------
Balance at December 31, 1997                 12,374,623   $ 123,746      $10,138,161      $(4,476,048)    ($236,284)
                                             ==========   =========      ===========      ===========     =========

<CAPTION>


                                                   Treasury Stock
                                                --------------------
                                                Shares        Amount         Total
                                                ------        ------         -----
<S>                                            <C>         <C>            <C>
Balance at December 31, 1995                   (409,738)   $ (316,841)    $7,573,494
   Shares issued in connection
     with convertible debt
     financing                                                               106,063
   Shares issued to broker in
     connection with Seafla
     acquisition                                                             151,500
   Amortization of unearned
     compensation                                                             81,011
   Cancellation of treasury stock               373,300       306,841
   Net loss                                                               (2,537,613)
                                               ---------    ---------     ----------
Balance at December 31, 1996                    (36,438)      (10,000)     5,374,455
   Shares issued in connection
     with convertible debt financing                                         674,467
   Shares issued in connection
     with exercise of warrants                                                 2,800
   Shares issued in connection with
     employment agreement                                                     25,000
   Cancellation of treasury stock                 36,438       10,000
   Amortization of unearned
     compensation                                                             81,011
  Warrants issued to a bank in
     connection with obtaining
     covenant modifications                                                   20,000
  Options issued for consulting services                                      20,000
   Net loss                                                                 (648,158)
                                               ---------    ---------     ----------
Balance at December 31, 1997                          --    $      --     $5,549,575
                                               =========    =========     ==========
</TABLE>


                            See accompanying notes.


                                      F-5
<PAGE>

                      Technology Flavors & Fragrances, Inc.

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                    For the years ended
                                                                                                        December 31,
                                                                                                --------------------------
                                                                                                     1997          1996
                                                                                                     ----          ----
<S>                                                                                             <C>            <C>
Cash flows from operating activities:
    Net loss ................................................................................   $  (648,158)   $(2,537,613)
    Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
        Depreciation and amortization .......................................................     1,360,217      1,146,126
        Provision for bad debts .............................................................        27,709        150,664
        Deferred rent .......................................................................        12,360          9,528
        Changes in assets and liabilities:
           Accounts receivable ..............................................................       809,207     (1,026,930)
           Inventories ......................................................................       285,106       (605,332)
           Prepaid expenses and other current assets ........................................        29,177         47,670
           Other assets .....................................................................      (180,246)      (190,874)
           Accounts payable .................................................................    (1,613,129)       740,090
           Accrued expenses .................................................................      (324,419)       651,391
                                                                                                -----------    -----------
        Net cash (used in) operating activities .............................................      (242,176)    (1,615,280)
                                                                                                -----------    -----------
Cash flows from investing activities:
    Purchase of fixed assets ................................................................      (141,074)      (137,072)
    Notes receivable ........................................................................         1,491         35,763
    Decrease in cash surrender value of life insurance policy ...............................            --        307,785
    Acquisition of Seafla, Inc. .............................................................            --        (47,764)
                                                                                                -----------    -----------
        Net cash (used in) provided by investing activities .................................      (139,583)       158,712
                                                                                                -----------    -----------
Cash flows from financing activities:
    Proceeds from long-term bank debt financing .............................................     6,264,600             --
    Repayment of long-term debt .............................................................    (5,536,235)      (277,000)
    Issuance of common stock ................................................................         2,800             --
    Proceeds from convertible debt financing ................................................            --      1,500,000
                                                                                                -----------    -----------
        Net cash provided by financing activities ...........................................       731,165      1,223,000
                                                                                                -----------    -----------
Increase (decrease) in cash .................................................................       349,406       (233,568)
Cash-beginning of year ......................................................................       233,566        467,134
                                                                                                -----------    -----------
Cash-end of year ............................................................................   $   582,972    $   233,566
                                                                                                ===========    ===========
Supplemental information:
    Cash paid during the period for interest ................................................   $   636,000    $   476,000
                                                                                                ===========    ===========
    Cash paid during the period for income taxes ............................................   $     2,600    $        --
                                                                                                ===========    ===========
</TABLE>

                             See accompanying notes.


                                      F-6
<PAGE>

                      Technology Flavors & Fragrances, Inc.

                Consolidated Statements of Cash Flows (Continued)

Supplemental disclosures of non-cash investing and financing activities:

      Equipment acquired under a capital lease obligation amounted to $33,000 in
      1997.

      In December 1997, the Company issued 25,000 shares of Common Stock valued
      at $25,000 to an officer of the Company as additional compensation
      pursuant to an employment agreement.

      In April 1997, the Company issued 100,000 warrants to a bank, which were
      valued at $20,000, in connection with the bank's amendment of a certain
      financial covenant in 1997 and 1996 waivers.

      In January 1997, the Company issued 125,000 options to a consultant valued
      at $20,000 in connection with a consulting agreement.

      In October 1996, the Company issued 100,000 shares of Common Stock valued
      at $100,000 to a broker and issued 606,250 warrants to the Convertible
      Note holders in connection with a convertible debt financing.

      In February 1996, the Company issued 100,000 shares of Common Stock valued
      at $152,000 for services performed by a broker in connection with the
      Company's December 1995 acquisition of Seafla, Inc. The issuance of shares
      was in lieu of payment which had previously been accrued at December 31,
      1995.


                             See accompanying notes.


                                      F-7
<PAGE>

                      Technology Flavors & Fragrances, Inc.

                   Notes to Consolidated Financial Statements

                 For the years ended December 31, 1997 and 1996

1. Background and Description of Business

      Technology Flavors & Fragrances, Inc. (the "Company") is a manufacturer of
flavor, fragrance and seasoning products used to provide or enhance flavors or
fragrances in a wide variety of consumer and industrial products.

2. Summary of Significant Accounting Policies

Consolidation

      The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

Inventories

      Inventories are stated at the lower of cost, determined using the
first-in, first-out method, or market. The cost of raw materials is determined
on the specific identification method.

Fixed Assets

      Machinery and equipment are recorded at cost and depreciated over their
estimated useful lives ranging from 5 to 10 years, using the straight-line
method. Leasehold improvements are amortized over the shorter of the lease term
or estimated useful life of the assets. Maintenance and repairs are charged to
expense as incurred and renewals and improvements, which extend the life of the
assets, are capitalized.

      If events or changes in circumstances indicate that the carrying value of
the Company's long-lived assets may not be recovered, the Company estimates the
future net cash flows expected to result from the use of the asset. If this net
cash flow is less than the carrying value, the Company will recognize an
impairment loss. No such impairment loss has been recognized for any period
presented.

Intangible Assets

      Amortization of intangible assets is provided on the straight-line method
over the estimated useful lives of the assets. Annually, the Company assesses
the realizability of its capitalized formulations based upon the yearly level of
product utilization and forecasted sales data.

Research and Development Costs

      Research and development costs are expensed as incurred.

Income Taxes

      The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount currently estimated to be realized.


                                      F-8
<PAGE>

                      Technology Flavors & Fragrances, Inc.

             Notes to Consolidated Financial Statements (Continued)

                 For the years ended December 31, 1997 and 1996

2. Summary of Significant Accounting Policies (Continued)

Foreign Currency Translation

      The financial position and results of operations of the Company's
subsidiaries are measured using local currency as the functional currency.
Balance sheet accounts are translated at the end of year exchange rate, and
income statement accounts are translated at the average rate of exchange
prevailing during the year. Translation adjustments arising from differences in
exchange rates between years have not been material.

Earnings Per Share

      In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the Statement 128
requirements.

Unearned Compensation

      Unearned compensation is recorded as a separate component of stockholders'
equity for the fair market value of the shares at time of issuance and are
charged on a straight-line basis to general and administrative expenses over the
related periods.

Revenue Recognition

      The Company recognizes revenue when inventory is shipped and title legally
transfers to the purchaser.

Advertising Costs

      The Company expenses advertising costs as incurred. Advertising costs were
approximately $50,000 in 1997 and $175,000 in 1996.

Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Fair Value of Financial Instruments

      Cash and cash equivalents, notes receivable and long-term debt are
reflected in the accompanying consolidated balance sheets at amounts considered
by management to reasonably approximate fair value. The Company estimates the
fair value of its fixed rate note receivable and long-term debt by using a
discounted cash flow analysis.

Recent Accounting Pronouncements

      In 1997, the FASB issued Statements No. 130 "Reporting Comprehensive
Income," and No. 131 "Disclosures About Segments of an Enterprise and Related
Information." These statements are effective for fiscal years commencing after
December 15, 1997. The Company will be required to comply with the provisions of
these statements in its year ending December 31, 1998. The Company does not
believe that the adoption of these statements will have a significant effect on
its consolidated financial statements and disclosures.

Reclassifications

Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.


                                      F-9
<PAGE>

                      Technology Flavors & Fragrances, Inc.

             Notes to Consolidated Financial Statements (Continued)

                 For the years ended December 31, 1997 and 1996

3. Receivables

                                                December 31,        December 31,
                                                   1997                 1996
                                                   ----                 ----

Trade ................................           $2,565,820           $3,222,157
Alcohol drawbacks ....................               47,209              154,430
Other ................................               80,052              153,410
                                                 ----------           ----------
                                                 $2,693,081           $3,529,997
                                                 ==========           ==========

      In 1997 and 1996, the allowance for doubtful accounts increased by an
additional provision of $28,000 and $151,000, respectively, and was reduced by
bad debt write-offs of $13,000 and $140,000, respectively. Included within trade
receivables during 1997 is an amount due from a party related to an executive
and principal shareholder of the Company in the amount of approximately
$250,000.

4. Inventories

                                                December 31,        December 31,
                                                    1997                1996
                                                    ----                ----

Raw materials ........................           $2,763,286          $3,145,743
Finished goods .......................              977,194             879,843
                                                 ----------          ----------
                                                 $3,740,480          $4,025,586
                                                 ==========          ==========

5. Fixed Assets

                                                     December 31,   December 31,
                                                         1997          1996
                                                         ----          ----

Machinery and equipment ..........................   $ 1,673,514    $ 1,595,536
Leasehold improvements ...........................       731,036        685,596
Furniture and fixtures ...........................       635,573        584,918
                                                     -----------    -----------
                                                       3,040,123      2,866,050
Less: accumulated depreciation and amortization ..    (1,763,504)    (1,464,988)
                                                     -----------    -----------
                                                     $ 1,276,619    $ 1,401,062
                                                     ===========    ===========

      Depreciation and amortization expense relating to fixed assets for the
years ended December 31, 1997 and 1996 was approximately $299,000 and $313,000,
respectively.

6. Intangible Assets

                                       Amortization  December 31,  December 31,
                                           Period        1997          1996
                                           ------        ----          ----

Goodwill ...........................          15     $ 1,025,591    $ 1,025,591
Formulations .......................         5-13      6,242,959      6,242,959
Organization costs .................           5          44,640         44,640
Customer lists .....................         5-13        360,000        360,000
Non-compete covenants ..............           4         150,000        150,000
Trademarks .........................           5          39,095         39,095
                                                     -----------    -----------
                                                       7,862,285      7,862,285
Less: accumulated amortization .....                  (2,303,292)    (1,656,531)
                                                     -----------    -----------
                                                     $ 5,558,993    $ 6,205,754
                                                     ===========    ===========


                                      F-10
<PAGE>

                      Technology Flavors & Fragrances, Inc.

             Notes to Consolidated Financial Statements (Continued)

                 For the years ended December 31, 1997 and 1996

      Amortization expense relating to intangible assets for the years ended
December 31, 1997 and 1996 was approximately $647,000 and $654,000,
respectively.

7. Notes Receivable From Related Parties

      Notes receivable from related parties consist of amounts owed by two
executives and principal shareholders of the Company. The notes bear interest at
8% per annum and are due in monthly installments of principal and interest
through December 31, 1999.

8. Long-Term Debt

                                                   December 31,    December 31,
                                                      1997             1996
                                                      ----             ----

Revolving Credit Facility .......................  $5,175,134(c)   $4,375,000(a)
Term Loan Facility ..............................     712,500(c)           --
Convertible subordinated notes payable ..........          --       1,500,000(b)
Note payable to the former Seafla shareholder (d)     888,019         888,019
Capital leases ..................................     105,853          96,588
                                                   ----------      ----------
                                                    6,881,506       6,859,607
        Less: current maturities ................     177,212          19,078
                                                   ----------      ----------
                                                   $6,704,294      $6,840,529
                                                   ==========      ==========

      (a) On October 22, 1996, the Company consolidated its then existing
$3,500,000 bank term loan and its $2,000,000 revolving line of credit into a
$5,500,000 revolving credit line. Outstanding borrowings under that credit line
were secured by substantially all of the assets of the Company. The credit line
required the maintenance of specified levels of tangible net worth, working
capital and limits on capital expenditures. On April 7, 1997, the bank waived
certain covenant provisions for 1996 and amended a covenant provision for 1997.
On April 7, 1997, in connection with the 1996 waivers and 1997 amendment, the
Company issued to the bank warrants to purchase 100,000 shares of the Company's
common stock at a price of $2.40 per share. The warrants expire 5 years from the
date of issuance. The warrants contain a "put" provision which will give the
bank the right to require that the Company purchase the warrants from the bank
for $20,000.

      The bank's "put" period is for 120 days, beginning on the first
anniversary of the issuance of the warrants. The warrants contain anti-dilution
provisions and other benefits provided to the Convertible Subordinated Note
holders (see (b) below) in their warrants. The Company has the right at any time
prior to April 7, 1998 to "call" 50,000 of the warrants by paying the bank
$20,000. The "call" provision may be exercised at any time up to the first
anniversary of the issuance of the warrants. Should the Company exercise its
"call" rights, the bank will retain its right to "put" the remaining balance of
the warrants to the Company and be paid a fee of $10,000.


                                      F-11
<PAGE>

                      Technology Flavors & Fragrances, Inc.

             Notes to Consolidated Financial Statements (Continued)

                 For the years ended December 31, 1997 and 1996

      (b) On October 17, 1996, the Company consummated a $1,500,000 Convertible
Subordinated Notes financing together with the issuance of stock purchase
warrants (see Note 11). The Notes were secured by liens on substantially all of
the assets of the Company and were convertible into shares of common stock, at
the option of the Company, at any time on or prior to October 16, 1997, at a
conversion price equal to the average market price for the ten trading days
immediately preceding the date of determination.

      (c) On October 16, 1997, the Company entered into a credit agreement with
a different bank which provided for a $6,000,000 Revolving Credit Facility and a
$750,000 Term Loan Facility (the "New Facility") to replace the $5,500,000
revolving credit line described above and to refinance $750,000 of the 9%
Convertible Subordinated Notes described in (b) above. The Company also
exercised its option to exchange the remaining balance of the $1,500,000
Convertible Subordinated Notes for 387,655 shares of the Company's common stock
in accordance with the terms of the Convertible Subordinated Notes.

      The New Facility bears interest based on the bank's London Interbank
Offering Rate ("LIBOR") plus 2-1/2% (which currently equates to approximately
1/4 of 1% below the bank's prime rate) or 1/2 of 1% above the bank's prime rate,
at the Company's option. Outstanding borrowings are secured by substantially all
of the assets of the Company, subject to the Company's borrowing base which
includes eligible receivables, inventories and product formulations. The New
Facility requires the maintenance of certain financial and other covenants. In
December 1997, the Company was in violation of two financial covenants in the
credit agreement relating to the New Facility. In March, 1998, the Company and
the lender entered into a waiver and amendment agreement (the "1998 Amendment")
which waived compliance by the Company with certain covenants for 1997 and
amended certain financial covenants for 1998. In connection with the Amendment,
the Company is obligated to pay the bank $75,000 on or before July 1, 1998,
provided, however, that in the event certain conditions are met, the amount
required to be paid to the bank will be reduced to $50,000.

      (d) In connection with the acquisition of Seafla, Inc. in December 1995,
the Company issued a promissory note of $888,019 payable in five annual
installments of $177,604 plus accrued interest at the rate of 12% per annum,
commencing January 1, 1997. In March 1997, the note was amended to delay the
initial principal payment plus accrued interest for 1997 until March 31, 1998,
while the accrued interest through December 31, 1996 was payable in monthly
installments from April 1997 through January 1998. In March 1998, the note was
again amended to further delay the initial principal payment until January 1,
2000 and to pay accrued interest payments of $10,000 per month. The remaining
four principal installments shall be payable on the first day of January of each
succeeding year until January 1, 2004.

9. Income Taxes

      The income tax provision for the years ended December 31, 1997 and 1996
represents current state income taxes.


                                      F-12
<PAGE>

                      Technology Flavors & Fragrances, Inc.

             Notes to Consolidated Financial Statements (Continued)

                 For the years ended December 31, 1997 and 1996

9. Income Taxes (Continued)

      A reconciliation of the income tax provision (benefit) at the statutory
rate to income tax expense at the Company's annualized estimated effective tax
rate for the years ended December 31, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
                                                                     1997         1996
                                                                  ---------    ---------
<S>                                                               <C>          <C>
Computed tax at federal statutory rate ........................   $(217,368)   $(861,811)
State and local income taxes-net of federal tax benefit .......     (25,573)     (66,917)
Non-deductible officers' life insurance premiums and travel and
entertainment expenses ........................................      14,697       16,784
Limitation on net operating loss carryforward .................     197,459      870,706
Other .........................................................      39,625       44,112
                                                                  ---------    ---------
Provision for income taxes ....................................   $   8,840    $   2,874
                                                                  =========    =========
</TABLE>

      The components of deferred taxes as of December 31, 1997 and 1996 are as
follows:

                                                      1997              1996
                                                  -----------       -----------
Deferred tax assets
   Accounts receivable .....................      $    62,700       $    57,000
   Capitalized inventory costs .............           35,263            68,537
   Depreciation ............................           13,533             3,079
   Amortization ............................           94,421            25,049
   Straight-line rent ......................           13,059             8,363
   Net operating loss carryforward .........        1,383,587         1,271,055
                                                  -----------       -----------
                                                    1,602,563         1,433,083
Valuation allowance ........................       (1,602,563)       (1,433,083)
                                                  -----------       -----------
Net deferred tax asset .....................      $        --       $        --
                                                  ===========       ===========

      The Company has net operating loss carryforwards relating to US operations
of approximately $3,244,000 which expire at various dates from 2007 through
2013.

10. Commitments and Contingencies

Lease Obligations

      During 1994, the Company received a rent abatement of $150,000 relating to
its Amityville, New York facility. As a result of the abatement, the Company
paid no rent for the first six months of the lease term and paid reduced rent
for the next seventeen months. The lease includes a provision for annual
increases in rental payments. The Company has recorded rent expense under the
straight-line method based on the minimum rent payable over the 12-year period
of the lease.

      In connection with the Company's acquisition of Seafla, the Company
assumed the lease of Seafla's 37,000 square foot facility in Milford, Ohio. The
owner of this facility is a partnership in which Mr. Richard Higgins, the
Company's Execitive Vice President, is a partner. The annual rental paid by the
Company for this facility is $192,000.


                                      F-13
<PAGE>

                      Technology Flavors & Fragrances, Inc.

             Notes to Consolidated Financial Statements (Continued)

                 For the years ended December 31, 1997 and 1996

10. Commitments (Continued)

The Company has an option to purchase the manufacturing facility on or before
December 6, 2000 based on the fair market value of the property determined by
independent appraisers.

      Future minimum commitments under noncancelable operating leases as well as
the lease on the Seafla facility, which the Company has the option to purchase
at fair value, are as follows:

Year ended
December 31,
------------

1998 ............................................................    $  505,521
1999 ............................................................       437,178
2000 ............................................................       376,110
2001 ............................................................       365,189
2002 ............................................................       356,832
Thereafter ......................................................     2,763,327

      Rental expense charged to operations for the years ended December 31, 1997
and 1996 was $589,000 and $606,000, respectively, of which $192,000 was paid
each year to a related party in 1997 and 1996.

Employment Contracts

      The Company is obligated under employment contracts, providing for annual
compensation, expiring on various dates through December 2000. Certain contracts
also call for additional compensation based on sales volumes.

      Future fixed compensation under these contracts, not including commissions
based upon sales volume, as of December 31, 1997 is as follows:

Year ended
December 31,
------------

1998 ............................................................    $1,968,400
1999 ............................................................     1,611,400
2000 ............................................................       868,600

Contingencies

      The Company has been named as a defendant in a certain legal action
arising out of the normal course of its operations, the final outcome of which
cannot presently be determined. The Company intends to vigorously contest the
action, and believes it to be without merit. Although there can be no assurance,
management is of the opinion that the resolution of this matter will not have a
significant impact on the Company's financial position, results of operations or
cash flows.

11. Stockholders' Equity

Warrants/Stock Grants

      In December 1997, the Company issued 25,000 shares of Common Stock valued
at $25,000 to an officer of the Company as additional compensation pursuant to
an employment agreement.


                                      F-14
<PAGE>

      In April 1997, the Company issued 100,000 warrants to a bank, which were
valued at $20,000, in connection with the 1996 waivers and 1997 amendment.

      In January 1997, the Company issued 125,000 options to a consultant valued
at $20,000 in connection with a consulting agreement.

      In October 1996, the Company consummated a financing which provided for
the issuance of $1,500,000 of Convertible Subordinated Notes (see Note 8)
together with Class A Warrants, which entitle the holders to purchase an
aggregate of 450,000 shares of Common Stock, and Class B Warrants to purchase an
aggregate of 156,250 shares of Common Stock. The Class A and Class B Warrants,
which expire in 5 years, are exercisable into shares of Common Stock at exercise
prices of $2.40 per share and $2.70 per share, respectively, subject to
adjustments under certain circumstances pursuant to the financing. The value
received for these warrants of $6,063 was credited to paid-in capital in 1996.


                                      F-15
<PAGE>

                      Technology Flavors & Fragrances, Inc.

             Notes to Consolidated Financial Statements (Continued)

                 For the years ended December 31, 1997 and 1996

11. Stockholders' Equity (Continued)

      In October 1996, the Company issued 100,000 shares of Common Stock to a
broker in connection with the financing for the Company's Convertible
Subordinated Notes. The value associated with these shares of Common Stock is
approximately $100,000.

      In February 1996, the Company issued 100,000 shares of Common Stock valued
at $152,000 for services performed by a broker in connection with the Company's
December 1995 acquisition of Seafla, Inc. The issuance of shares was in lieu of
payment which had previously been accrued at December 31, 1995.

      During 1995, the Company issued warrants to purchase 600,000 shares of
common stock at an exercise price of U.S. $0.56 per share to a service provider,
which expire in 5 years. The value ascribed to these warrants of $60,000 was
amortized to expense over a one-year vesting period. Approximately $50,000
related to these warrants was expensed in 1996.

Stock Option Plans

      The Company has granted stock options under two separate plans: the 1996
Option Plan and the 1993 Option Plan.

      Under the 1996 and 1993 Option Plans, employees (including officers and
directors who are employees) of the Company or its subsidiary are eligible for
the grant of Incentive Options to purchase up to a maximum of 1,000,000 and
500,000 shares, respectively, which vest ratably over periods ranging from three
to five years. Options may also be granted to other persons, provided that such
options shall be Non-Qualified Options. In the case of an Incentive Option, the
exercise price cannot be less than the fair market value of the shares on the
date the Option is granted, and if an optionee is a shareholder who beneficially
owns 10% or more of the outstanding Common Stock, the exercise price of the
Incentive Options cannot be less than 110% of such fair market value. The
exercise price of Non-Qualified Options shall be determined by the Company's
Board of Directors or the Committee appointed by the Board of Directors.

      During 1996, the stockholders ratified the October 1995 Board of
Directors' resolution to reduce the exercise prices of all outstanding options
granted under the 1993 Option Plan from $1.38 per share to $.58 per share, with
respect to options granted to employees, officers or directors of the Company
who were not beneficial owners of 10% or more of the Common Stock and from $1.52
per share to $.64 per share with respect to options granted to employees,
officers or directors who beneficially own 10% or more of the Common Stock.

Stock Based Compensation Plans

      The Company continues to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its stock-based compensation plans. Under APB
25, because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.


                                      F-16
<PAGE>

                      Technology Flavors & Fragrances, Inc.

             Notes to Consolidated Financial Statements (Continued)

                 For the years ended December 31, 1997 and 1996

11. Stockholders' Equity (Continued)

      Pro forma information regarding net loss and net loss per share is
determined as if the Company had accounted for its stock options granted
subsequent to December 31, 1994, under the fair value method estimated at the
date of grant using a Black-Sholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 6.3%; no dividend
yield; volatility factor of the expected market price of the Company's Common
Stock of 50%; and a weighted-average expected life of the options of 6 years at
December 31, 1997 and 1996.

      The Black-Sholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

      For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:

                                                  1997                 1996
                                               -----------        -------------

Net loss as reported ...................       $  (648,158)       $  (2,537,613)
Pro forma net loss .....................          (753,087)          (2,574,512)
Net loss per share as reported .........              (.05)                (.21)
Pro forma net loss per share ...........              (.06)                (.22)

      FASB No. 123 method of accounting has not been applied to options granted
prior to January 1, 1996. As a result, the pro forma compensation cost may not
be representative of that to be expected in future years.

      Information as to options for shares of common stock granted as of
December 31, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
                                                        1997                      1996
                                              -------------------------  -------------------------
                                                         Weighted Avg.              Weighted Avg.
                                              Options    Exercise Price  Options    Exercise Price
                                              -------    --------------  -------    --------------
<S>                                          <C>         <C>              <C>        <C>
Outstanding at beginning of year .......      629,500    $       .86      552,000    $       .60
Granted ................................      691,000           1.42      120,000           1.91
Exercised ..............................           --             --           --             --
Canceled ...............................     (119,500)          1.87      (42,500)           .58
                                              -------                     -------
Outstanding at end of year .............    1,201,000           1.08      629,500            .86
                                            =========    ===========      =======    ===========

Exercisable at end of year .............      581,200                                    304,750
                                            =========                                ===========

Weighted average fair value of options
  granted during the year ..............                 $       .68                 $      1.13
                                                         ===========                 ===========
</TABLE>


                                      F-17
<PAGE>

                      Technology Flavors & Fragrances, Inc.

             Notes to Consolidated Financial Statements (Continued)

                 For the years ended December 31, 1997 and 1996

11. Stockholders' Equity (Continued)

      The following table summarizes information on stock options outstanding at
December 31, 1997:

                                                           Weighted Average
                             Options      Options     Remaining Contractual Life
Exercise Price             Outstanding  Exercisable           in Years
--------------             -----------  -----------   --------------------------

$.58-.64 ................     500,000     400,000                 4.1
1.15 ....................      10,000       5,000                 8.1
1.28 - 1.6875 ...........     691,000     176,200                 8.7
                            ---------     -------                 ---
                            1,201,000     581,200                 6.8
                            =========     =======                 ===

      At December 31, 1997, 1,510,000 shares of common stock were reserved for
the future issuance of stock options.

12. Employee Savings Plan

      The Company has an employee savings plan covering all non-union employees
meeting certain age and length of service requirements, pursuant to Section 401K
of the Internal Revenue Code. Participants may contribute a percentage of
compensation, but not in excess of the maximum allowable by law.

      The Plan provides for a voluntary matching contribution by the Company
which is one half of the amount contributed by the participant up to a maximum
of 3% per annum. The Company has temporarily discontinued its matching
contribution since October 1997. Matching contributions amounted to $67,000 and
$75,000 for the years ended December 31, 1997 and 1996, respectively. Employees
vest in the employer contribution at the rate of 25% per year.

13. Other Information

Concentrations of Credit Risk

      Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily trade accounts receivable. Ongoing
credit evaluation of customers' financial condition are performed and generally
no collateral is required. Credit losses have typically been within management's
expectations.

      At December 31, 1997 and 1996, five customers accounted for approximately
29% and 42% of the accounts receivable balance, respectively. For the year ended
December 31, 1997, one customer accounted for 16% of the Company's net sales.
For the year ended December 31, 1996, no one customer accounted for more than
10% of the Company's net sales.

      For the years ended December 31, 1997 and 1996, export sales were
approximately 30 % and 29%, respectively, of total sales. The Company's export
sales are made to entities located primarily in Canada and South America.
Receivables from such foreign sales at December 31, 1997 and 1996 amounted to
41% and 59%, respectively, of total accounts receivable.

      Cash and cash equivalent balances are held primarily at one financial
institution and may, at times, exceed the amount insurable. The Company believes
it mitigates its risks by investing in or through major financial institutions.
Recoverability of investment is dependent upon the performance of the issuer.


                                      F-18
<PAGE>

14. Reconciliation of Canadian and United States Generally Accepted Accounting
    Principles

      These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP").
During 1997 and 1996, there were no material items which would be required to be
recorded in order for the Company's financial statements to be in accordance
with accounting principles generally accepted in Canada.



                                      F-19